Full text of "Health care reform : hearings before the Subcommittee on Health of the Committee on Ways and Means, House of Representatives, One Hundred Third Congress, first session"

'2 HEALTH CARE RE FORM

y 4, W 36: 103-89

Health Care Reforn, Serial Ho. 103-. . .

HEARINGS

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OP REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

VOLUME X

President's Health Care Reform Proposals:
Impact on Providers and Consumers

OCTOBER 7, 21, 22, 26; NOVEMBER 15. 1993; FEBRUARY 1 AND 4, 1994

PART 1 OF 3

OCTOBER 7, 21, AND 22, li

Serial 103-89

Printed for the use of the Committee on Ways and Means

HEALTH CARE REFORM

HEARINGS

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

VOLUME X

President's Health Care Reform Proposals:
Impact on Providers and Consumers

OCTOBER 7, 21, 22, 26; NOVEMHER 15, 1993; FEBRUARY 1 AND 4, 1994

PART 1 OF 3

OCTOBER 7, 21, AND 22, 1993

Serial 103-89

Printed for the use of the Committee on Ways and Means

U.S. GOVKKNMKNT PRINTING OFFICE
WASHINGTON : 199-1

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046163-4

COMMITTEE ON WAYS AND MEANS

DAN ROSTENKOWSKJ. Illinois, Chairman

SAM M. GIBBONS, Florida
J.J. PICKLE, Texas
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ANDY JACOBS, JR., Indiana
HAROLD E. FORD, Tennessee
ROBERT T. MATSUl. California
BARBARA B. KENNELLY, Connecticut
WILLIAM J. COYNE, Pennsylvania
MICHAEL A. ANDREWS, Texas
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM McDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
L.F. PAYNE, Virginia
RICHARD E. NEAL, MassachusetU
PETER HOAGLAND, Nebraska
MICHAEL R. McNULTY, New York
MIKE KOPETSKI, Oregon
WILLIAM J. JEFFERSON, Louisiana
BILL K. BREWSTER, Oklahoma
MEL REYNOLDS, Illinois

BILL ARCHER, Texas
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
DON SUNDQUIST, Tennessee
NANCY L. JOHNSON, Connecticut
JIM BUNNING, Kentucky
FRED GRANDY, Iowa
AMO HOUGHTON, New York
WALLY HERGER, California
JIM McCRERY, Louisiana
MEL HANCOCK, Missouri
RICK SANTORUM, Pennsylvania
DAVE CAMP, Michigan

Janice Mays, Chier Counsel and Sta/T Director
CllAJ«>;s M. Brain, AssLstant Staff Director
Pmi.l.ll' I). Moskij-:y, Minority Chief of Staff

Subcommittee on Health

FORTNEY PE^E STARK, California, Chairman

SANDER M. LEVIN, Michigan BILL THOMAS, CaHfomia

BENJAMIN L. CARDIN, Maryland NANCY L. JOHNSON, Connecticut

MICHAEL A. ANDREWS, Texas FRED GRANDY, Iowa

JIM McDERMOTT, Washington JIM McCRERY, Louisiana
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS. Geoi^a

(II)

CONTENTS

PRESIDENT'S HEALTH CARE REFORM PROPOSALS: BVIPACT ON
PROVIDERS AND CONSUMERS

Page

Press releases announcing the hearings 2

OCTOBER 7, 1993

WITNESSES

Alliance for Managed Competition, Lawrence P. English 57

American Hospital Association, Dick Davidson 109

American Meaical Association, James S. Todd, M.D 116

American Nurses Association, Gwendolyn Johnson 140

Blue Cross and Blue Shield Association, Mary Nell Lehnhard 64

CIGNA Healthcare, Lawrence P. English 57

Group Health Association of America, Inc., Karen Ignagni 71

Health Insurance Association of America, and Lincoln National Life Insur-
ance Co., Ian M. Rolland 78

U.S. Chamber of Commerce, William T. Archey 20

Washington Business Group on Health, Anne Marie O'Keefe 15

OCTOBER 21, 1993

WITNESSES

AIDS Action Council, Daniel T. Bross 324

American Association of Retired Persons, Judith Brown 178

Citizen Action, Richard Kirsch, Citizen Action of New York 255

Communicating for Agriculture, Jeffrey Smedsrud 292

Consumers Union, Gail Shearer 226

League of Women Voters of the United States, Becky Cain 264

March of Dimes Birth Defects Foundation, Richard A. Ehrenkranz, M.D 317

National Committee to Preserve Social Security and Medicare, Martha

McSt^en 201

National Health Law Program, Inc., Stan Dorn 246

Older Women's League, Dianna M. Porter 192

OCTOBER 22, 1993

WITNESSES p^p,

American Academy of Family Physicians, William H. Coleman, M.D 413

American Academy of Pediatrics, Howard A. Pearson, M.D 430

American Clinical Laboratory Association, Hope S. Foster 466

American College of Physicians, Paul F. Griner, M.D 400

American College of Surgeons, W. Gerald Austen, M.D 407

American Dental Association, Jack Harris, D.D.S 451

American Physical Therapy Association, and Burch, Rhoads & Loomis, Ernest

Burch 460

California Association of Hospitals and Health Systems, C. Duane Dauner 375

National Association of Public Hospitals, Larry S. Gage 354

National Rural Health Association, Ron V. Hunter 369

PRESIDENT'S HEALTH CARE REFORM
PROPOSALS: IMPACT ON PROVIDERS AND
CONSUMERS

THURSDAY, OCTOBER 7, 1993

House of Representatives,
Committee on Ways and Means,

Subcommittee on Health,

Washington, D.C.
The subcommittee met, pursuant to call, at 10:05 a.m., in room
1100, Longworth House Office Building, Hon. Fortney Pete Stark
(chairman of the subcommittee) presiding.

[The press releases announcing the hearings follow:]

(1)

FOR IMMEDIATE RELEASE PRESS RELEASE #18

THURSDAY, SEPTEMBER 30, 1993 SUBCOMMITTEE ON HEALTH

COMMITTEE OH WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
1102 LONGWORTH HOUSE OFFICE BLDO.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D., CALIF.), CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE OH WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,

ANNOUNCES HEARINGS

HEALTH CARE REFORM:

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D. , Calif.), Chairman, Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives,
announced today that the Subcommittee will hold a series of hearings
on issues relating to the President's health care reform proposals.

The hearings will begin on Thursday, October 7, 1993, at
10:00 a.m. in the main Committee hearing room, 1100 Longworth House
Office Building. They will continue on Tuesday, October 12, 1993,
in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 a.m. Subsequent hearings will be
announced at a later date.

In announcing the hearings. Chairman Stark said: "The
President's health care reform plan presents a comprehensive response
to the nation's most pressing problem. The plan would commit the
nation to universal health coverage and to cost containment — goals
we have been seeking for many years. The President's proposals are
complex, and we want to explore this plan and the alternatives to it,
thoroughly, before proceeding to mark up a bill. We, therefore,
expect to hold hearings to examine various aspects of the proposals
throughout the fall of 1993."

Oral testimony will be heard from invited and public witnesses
during the course of the Subcommittee hearings on the President's
proposals.

BACKGROUND ;

The first hearing,, scheduled for October 7, will include
testimony from representatives of affected groups, including labor
unions, health care providers, and health insurers.

Testimony from Administration experts on various aspects of the
President's proposals, including benefits, coverage, low-income
subsidies, cost containment, governance, and Medicare proposals, will
be heard by the Subcommittee at the next two hearings. The first day
of Administration witnesses will be held on October 12, and the
second day will be announced in a later press release.

At subsequent hearings the Subcommittee will receive testimony
from Members of Congress and from representatives of other affected
groups, including consumer and employer groups.

Testimony will be heard at additional hearings to focus on a
series of priority health reform issues, including:

(1) Role of State governments and the Federal Government,
including the role and functions of the proposed National
Health Board, the Department of Health and Human Services,
and other Federal agencies;

(2) Role and functions of the proposed health alliances;

(3) Health cost containment, including premium caps and
alternative mechanisms;

(4) Proposed insurance reforms and their impact, risk
selection, and risk adjustment;

(5) Impact of the plan on underserved inner-city and rural
areas ;

(6) Impact of the plan on low-income populations generally;

(7) Medicare savings proposals;

(8) Impact of the plan on the structure and future of the
Medicare program, including the proposed Medicare drug
benefit;

(9) Alternatives to the plan, including single-payer options,
and other managed-competition options;

(10) Administrative simplification under the plan;

(11) Quality assurance;

(12) Fraud and abuse measures;

(13) Retiree health benefits;

(14) Long-term care benefit;

(15) Proposed standard health benefit package;

(16) Graduate medical education and academic medical centers;

(17) Impact of the plan on other affected groups and
individuals.

Hearings also will be scheduled by the full Committee on Hays
and Means to consider financing issues (other than Medicare savings
proposals) and other tax-related matters.

DETAILS FOR SUBMISSION OF RE0DEST8 TO BE HEARD ;

Members of Congress, individuals and organizations interested in
presenting oral testimony before the Subcommittee must submit their
requests to be heard by telephone to Harriett Lawler, Diane Kirkland
or Karen Ponzurick [ (202) 225-1721] no later than the close of
business on Friday, October 15, 1993, to be followed by a formal
written request to Janice Mays, Chief Counsel and Staff Director,
Committee on Ways and Means, U.S. House of Representatives,
1102 Longworth House Office Building, Washington, D.C. 20515. The
staff will notify by telephone those scheduled to appear as soon as
possible after the filing deadline and after additional hearings have
been scheduled.

Individuals and organizations m ust specify in their recmests to
testify on which topic they would like to be heard . Given the
limited time for the Subcommittee to hear from public witnesses, it
is likely that witnesses will be restricted to one scheduled
appearance before the Subcommittee. Additional comments on other
aspects of the President's proposals may be submitted for the printed
record of the appropriate hearing.

It is urged that persons and organizations having a common
position make every effort to designate one spokesperson to represent
them in order for the Subcommittee to hear as many points of view as
possible. Witnesses are reminded that the Subcommittee has held
extensive hearings on various health reform issues earlier this year.
To the extent possible, witnesses need not restate previous testimony
heard by the Subcommittee.

Time for oral presentations will be strictly limited with the
understanding that a more detailed statement may be included in the
printed record of the hearing. In addition, witnesses may be grouped
as panelists with strict time limitations for each panelist.

In order to assure the most productive use of the limited amount
of time available to question hearing witnesses, all witnesses
scheduled to appear before the Subcommittee are requested to submit
300 copies of their prepared statements to the Subcommittee office,
room 1114 Longworth House Office Building, at least 24 hours in
advance of the scheduled appearance. Failure to comply with this
requirement may result in the witness being denied the opportunity to
testify in person.

WRITTEN STATEMENTS IN LIED OF PERSONAL APPEARANCE;

Persons submitting written statements for the printed record of
the hearing should submit at least six (6) copies of their statements
by the close of business on the last day of the hearings, to
Janice Mays, Chief Counsel and Staff Director, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. An additional supply of statements
may be furnished for distribution to the press and public if supplied
to the Subcommittee office, room 1114 Longworth House Office
Building, before the final hearing begins.

FORMATTING REQOIREMENTS ;

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the
printed record or any written comments in response to a request for written comments must conform to the guidelines listed below.
Any statement or exhibit not in compliance with these guidelines will net be printed, but will be maintained in the Committee
files for review and use by the Committee.

1 . All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not
exceed a total of 10 pages.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should
be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the
Committee files for review and use by the Committee.

3. Statements must contain the name and capacity in which the witness will appear or. for written comments, the name and
capacity of the person submitting the statement, as well as any clients or persons, or any organization for whom the witness
appears or for whom the statement is submitted.

4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the witness
or the designated representative may be reached and a topical outline or summary of the comments and recommendations
in the full statement. This supplemental sheet will not be included In the printed record.

The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or
supplementary material submitted solely for distribution to the Members, the press and public during the course of a public hearing,
may be submitted in other forms.

FOR IMMEDIATE RELEASE PRESS RELEASE #19

WEDNESDAY, OCTOBER 6, 1993 SUBCOMMITTEE ON HEALTH

COMMITTEE ON WAYS AND MEANS
D.S. HOUSE OF REPRESENTATIVES
1102 LOM6WORTH HOUSE OFFICE BLDG.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D. , CALIF.)/ CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,

ANNOUNCES ADDITIONAL HEARINGS

HEALTH CARE REFORM:

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D., Calif.), Chairman, Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives,
announced today that the Subcommittee will continue its series of
hearings on issues relating to the President's health care reform
proposals with two hearings focusing on testimony from Administration
witnesses.

The hearing previously announced for Tuesday, October 12, 1993,
in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 a.m., will begin at 10:30 a.m. All
other details for this hearing remain the same. (See Subcommittee
press release /18, dated September 30, 1993.)

The Subcommittee will continue its hearings on Friday,
October 15, 1993, in the main Committee hearing room, 1100 Longworth
House Office Building, beginning at 10:00 a.m. The dates, times, and
rooms for subsequent hearings will be announced at a later date.

In announcing the hearings. Chairman Star)c said: "The President
has put forward a comprehensive and complex plan to address the
critical goals of universal coverage and cost containment. As a
follow-up to full Committee hearings with the First Lady and
Secretary Shalala, the Subcommittee will hold two hearings with
additional Administration officials to explore the proposed health
plan in detail."

Oral testimony will be heard from invited and public witnesses
during the course of the Subcommittee hearings on the President's
proposals. For further details about these hearings, see
Subcommittee press release #18, dated September 30, 1993.

BACKGROUND;

On October 12, the Subcommittee will receive testimony from the
Administrator of the Health Care Financing Administration, the
Honorable Bruce C. Vladeck. Mr. Vladeck's testimony will focus on
various aspects of the President's proposal, including the
methodology for controlling the rate of growth in public and private
health care spending, the employer and individual mandates, subsidies
for firms with fewer than 50 employees, subsidies for low-income
individuals, retiree health benefits, the Medicare prescription drug
benefit, and more generally, the future of the Medicare program.

Judy Feder, Ph.D, Principal Deputy Assistant Secretary for
Planning and Evaluation, Department of Health and Human Services,
will appear before the Subcommittee on Friday, October 15th. Dr.
Feder 's testimony will cover issues of governance under the
Administration's health care reform plan, including the role of the
States, various Federal agencies, the National Health Board and the
alliances. She will also focus on essential providers, insurance
reforms and long-term care.

* * * CHAMGE IN SCHEDULE * * *

FOR IMMEDIATE RELEASE PRESS RELEASE #19-REVISED

FRIDAY, OCTOBER 8, 1993 . SUBCOMIIITTEE ON HEALTH

COMMITTEE OH WAYS AND MEANS
U.S. HOOSE OF REPRESENTATIVES
1102 LONGWORTH HOUSE OFFICE BLDG.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D. , CALIF.), CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,

ANNOUNCES SCHEDULING CHANGES FOR HEARINGS

HEALTH CARE REFORM:

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D. , Calif.) » Chairman, Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives,
announced today scheduling changes for the hearings on issues
relating to the President's health care reform proposals with
testimony from Administration witnesses. (See Subcommittee press
release #19, dated October 6, 1993.)

The hearing previously announced for Tuesday, October 12, 1993,
in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:30 a.m., will be held on Thursday.
October 14. beainning at 10:00 a.m.

On Thursday, October 14, Judy Feder, Ph.D., Principal Deputy
Assistant Secretary for Planning and Evaluation, Department of Health
and Human Services, will appear before the Subcommittee. Dr. Feder 's
testimony will cover issues of governance under the Administration's
health care reform plan, including the role of the States, various
Federal agencies, the National Health Board and the alliances. She
will also focus on essential providers, instirance reforms and long-
term care.

The Administrator of the Health Care Financing Administration,
the Honorable Bruce C. Vladeck, originally scheduled to appear on
Tuesday, October 12, 1993, instead will appear before the
Subcommittee on Friday, October 15, 1993, at 10:00 a.m. in the main
Committee hearing room, 1100 Longworth House Office Building.

Mr. Vladeck 's testimony will focus on various aspects of the
President's proposal, including the methodology for controlling the
rate of growth in public and private health care spending, the
employer and individual mandates, subsidies for firms with fewer than
50 employees, subsidies for low-income individuals, retiree health
benefits, the Medicare prescription drug benefit, and more generally,
the future of the Medicare progreun.

For additional information about these hearings and other
Subcommittee hearings, see Subcommittee press releases #18, dated
September 30, 1993, and #19, dated October 6, 1993.

FOR IMMEDIATE RELEASE PRESS RELEASE #2

FRIDAY, OCTOBER 15, 1993 SUBCOMMITTEE ON HEALTH

- COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
1102 LON6WORTH HOUSE OFFICE BLD6.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D. , CALIF.)/ CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES!

ANNOUNCES ADDITIONAL HEARINGS

HEALTH CARE REFORM:

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D. , Calif. )» Chairman, Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives,
announced today that the Subcommittee has scheduled two additional
hearings as part of its series of hearings on issues relating to the
President's health care reform proposals.

The Subcommittee will hold a hearing on Thursday,
October 21, 1993, in the main Committee hearing room, llOO Longworth
House Office Building, beginning at 10:30 a.m., with testimony from
representatives of consumer groups.

On Friday, October 22, 1993, the Subcommittee will hear
testimony from provider groups beginning at 10:00 a.m. in the main
Committee hearing room, 1100 Longworth House Office Building.

Witnesses for these hearings will include both invited witnesses
and individuals and organizations who have requested an opportunity
to testify before the Subcommittee. All witnesses who will appear at
these hearings, however, will be notified in advance by the staff.

The dates, times, and rooms for subsequent hearings will be
announced at a later date. Oral testimony will be heard from invited
and public witnesses during the course of the Subcommittee hearings
on the President's proposals. For further details about the
hearings, see Subcommittee press release #18, dated
September 30, 1993.

FOR IMMEDIATE RELEASE
WEDNESDAY, OCTOBER 20,

PRESS RELEASE #21
SUBCOMMITTEE ON HEALTH
COMMITTEE ON WAYS AND ME2VNS
O.S. HOOSE OF REPRESENTATIVES
1102 LONGWORTH HOUSE OFFICE BLD6.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D. , CALIF.), CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,

ANNOUNCES ADDITIONAL HEARINGS

HEALTH CARE REFORM:

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D. , Calif.) # Chairman, Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives,
announced today that the Subcommittee has scheduled additional
hearings as part of its series of hearings on issues relating to the
President's health care reform proposals.

The dates, times, rooms, and topics for the additional hearings
are as follows:

Tuesday,
October 2 6

Thursday ,
October 28

9:00 a.m. HOO Longworth Provider groups

10:00 a.m. 1100 Longworth Labor representatives

Tuesday ,
November 2

10:00 a.m. 1100 Longworth Long-term care issues

Thursday ,
November '

1100 Longworth Impact on the economy and
jobs

Friday,
November 5

1100 Longworth Role of State governments
and health alliances

Tuesday ,
November 9

1310A Longworth Issues relating to risk
selection and adjustment
by health plans

Monday ,
November 15

1310A Longworth Health care cost
containment

The dates, times, and rooms for subsequent hearings will be
announced at a later date. Oral testimony will be heard from invited
and public witnesses during the course of the Subcommittee hearings
on the President's proposals. For further details about these
hearings, see Subcommittee press release #18, dated
September 30, 1993.

* * * CHMI6E IN ROOM AND TOPIC * * *

FOR IMMEDIATE RELEASE PRESS RELEASE #21-REVISED

MONDAY, NOVEMBER 8, 1993 SUBCOMMITTEE ON HEALTH

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
1102 L0N6W0RTH HOUSE OFFICE BLD6.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D. , CALIF.), CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,

ANNOUNCES A CHANGE IN ROOM AND TOPIC FOR THE HEARING ON

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D. , Calif.)/ Chairman, Subcommittee
on Health, Committee on Ways and Means, U.S. House of
Representatives, today announced that the Subcommittee hearing on
the President's health care reform proposals scheduled for Monday,
November 15, 1993, at 10:00 a.m. in room 1310A Longworth House
Office Building, will be held instead in the main Committee hearing
room, 1100 Longvorth House Office Building, beginning at 10:00 a.m.
(See press release #21, dated Wednesday, October 20, 1993.)

The topic of this hearing will not be health care cost
containment. Testimony will be heard instead from public witnesses
on issues relating to benefits under the President's health care
reform proposals.

The Subcommittee hearing on health care cost containment will
be rescheduled at a later date.

FOR IMMEDIATE RELEASE PRESS RELEASE #23

FRIDAY, JANUARY 14, 1994 SUBCOMMITTEE ON HEALTH

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
1102 LONGWORTH HOUSE OFFICE BLDO.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D. , CALIF.), CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,

ANNOUNCES ADDITIONAL HEARINGS

HEALTH CARE REFORM:

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D, , Calif.), Chairman, Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives,
announced today that the Subcommittee has scheduled two additional
days of hearings to receive testimony from the public, as part of its
series of hearings on issues relating to the President's health care
reform proposals.

The first hearing will be held on February 1, 1994, in room
1310A Longworth House Office Building. This hearing will begin at
2:30 p.m. or, if necessary, upon completion of the earlier full
Committee hearing.

The second hearing will be held on Friday, February 4, 1994,
beginning at 10:00 a.m., in the main Committee hearing room,
1100 Longworth House Office Building.

Witnesses for these hearings will be individuals and
organizations who have previously requested an opportunity to testify
before the Subcommittee, in accordance with Subcommittee press
release #18. All witnesses who will appear at these hearings will be
notified in advance by the staff.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE;

Persons submitting written statements for the printed record of
the hearings should submit at least six (6) copies of their
statements by the close of business on the last day of the hearings,
to Janice Mays, Chief Counsel and Staff Director, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. An additional supply of statements
may be furnished for distribution to the press and public if supplied
to the Subcommittee office, room 1114 Longworth House Office
Building, before the final hearing begins.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for
the printed record, or any written comments in response to a request for written comments must conform to the guidelines
listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in
the Committee files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and
may not exceed a total of 10 pages.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit
material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications
will be maintained in the Committee files for review and use by the Committee.

.3. Statements must contain the name and capacity in which the witness will appear or, for written comments, the
name and capacity of the person submitting the statement, as well as any clients or persons, or any organization
for whom the witness appears or for whom the statement is submitted.

4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where
the witness or the designated representative may be reached and a topical outline or summary of the comments
and recommendations in the full statement. This supplemental sheet will not be included in the printed record.

* * * NOTICE — CHANGE IN TIME * * *

FOR IMMEDIATE RELEASE PRESS RELEASE #23-REVI8EO

MONDAY, JANUARY 24, 1994 SUBCOMMITTEE ON HEALTH

COMMITTEE ON NAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
1102 LONGWORTH HOUSE OFFICE BLDG.
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-7785

THE HONORABLE PETE STARK (D., CALIF.), CHAIRMAN,

SUBCOMMITTEE ON HEALTH,

COMMITTEE ON NAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,

ANNOUNCES A TIME CHANGE FOR HEARING

HEALTH CARE REFORM:

THE PRESIDENT'S HEALTH CARE REFORM PROPOSALS

The Honorable Pete Stark (D. , Calif.), Chairman, Subcommittee on
Health, Committee on Ways and Means, U.S. House of Representatives,
today announced that the Subcommittee hearing on the President's
health care reform proposals previously scheduled for Tuesday,
February 1, 1994, at 2:30 p.m. in room 1310A Longworth House Office
Building, vill begin instead at 10:00 a.m.

All other details for the hearing remain the same. (See
Subcommittee press release #23, dated January 14, 1994.)

Chairman Stark. Good morning. The Health subcommittee of
the Committee on Ways and Means will pick up from 2 weeks ago
when President Clinton presented us with an outline of a bold and
sweeping proposal that would reform our Nation's health care sys-
tem. The proposal offered the promise of assuring all Americans
the security of never losing their health insurance, and the promise
of slowing the rapid growth of health care costs. I commend the
President for his leadership in these areas.

It is time for this committee now to get down to work: To fulfill
these promises by enacting workable, national health care reform
legislation. It won't be an easy task. The members of this sub-
committee are among the major proponents of every model of re-
form that has been seriously proposed and perhaps a few that
haven't been proposed.

Over the next few months this subcommittee will work its way
through the various pieces of the President's plan. The plan is both
comprehensive and complex. It will take some time for members
and the public to develop a thorough understanding of all of its
technical components. We also will have to consider the various al-
ternatives that have been put before us.

During this process, we will find that some pieces of the Presi-
dent's plan will work as advertised, and I expect that these will be
adopted into the final package with only minor adiustments. The
sections on insurance reforms, administrative simplification, fraud
and abuse may fall into this category.

Other sections of the President's plan with laudable objectives
may need more work. For example, while we must provide some
form of assistance to low-income persons, the system of low-income
subsidies proposed by the administration may have the unintended
consequence of perpetuating the two-tiered system of care that ex-
ists in many communities today. If this is true, the Chair would
hope that we could develop alternative methods for achieving the
same purpose.

There will also be areas where members have fundamental dis-
agreements with the approach taken by the administration. For ex-
ample, I have made no secret of the fact that I have grave concerns
with the proposal to invest the States with the primary responsibil-
ity to implement and enforce many elements of the plan. I am sure
that each member of this subcommittee has his or her list of con-
cerns. Each issue will have to be addressed and resolved as we pro-
ceed through the legislative process.

Finally, we will have to assure ourselves, and our constituents,
that the final package is financially in balance. Before legislation
is enacted, we will need to be sure that all of the various sources
of revenues, subsidies, payments by States, and savings in Federal
programs will fully and fairly finance the benefits that are being
promised to every American.

It is going to be very easy to fail. We must enter into this effort
in the spirit of cooperation and compromise with the certain knowl-
edge that failure would be a tragedy for all Americans.

Today we begin this subcommittee's trip down this long and
treacherous road. Our witnesses this morning include representa-
tives of employers, insurers and providers. I am sure they will help
us identify major issues and questions about the President's plan.

Before proceeding with the hearing, I would like to recognize the
distinguished ranking member of the minority, Mr. Thomas.

Mr. Thomas. Thank you, Mr. Chairman. We have already had a
number of subcommittee hearings over general topics so that we
can prepare ourselves to begin looking at the specific plans. I think
we need to remind ourselves that as we attempt to overhaul the
health care system with all the perils the chairman has outlined,
that we will be doing it under the structure of politics which is ba-
sically the process of determining who gets what, when, and how.

When I look at the President's plan, it is, if nothing else, very
attractive politics. It provides security for all, new benefits for the
elderly, subsidies for larger firms, an early retirement, buy downs
for smaller firms, subsidies on the cost of the package buy downs
and a bonus of $91 billion in deficit reduction. All this is paid for,
basically, by a tobacco, or sin, tax and by squeezing out of waste,
fraud, and abuse in the structure.

Very powerful politics, but as the chairman said, I am concerned
whether or not the mechanics of how it operates will deliver what
is promised and whether or not what is delivered is really what the
American people want.

Second, I am concerned about the fact that as the First Lady pre-
sented the package to us she was quite firm in her resolve that cer-
tain numbers within the package had been scrubbed inside by all
appropriate government agencies and outside by major firms that
simply by their names on the list indicated that the numbers were
of sterling quality and would stand up under any examination.

Apparently we have not gotten the same scrubbing on the JOBS
question. All of a sudden the economics that produced those very
precise numbers which would allow you to not only determine the
amount that you were going to get from Medicare, but where the
money is going in the short term and the long term, on charts pre-
pared by the administration, become a difficult and dismal art and
just a set of shoulder-shrugging exercises on exactly what kind of
jobs are going to be affected in this country, not only on the
amount, but where.

Admittedly, some of those questions are difficult, but I don't
think they are any more difficult than those on the other side of
the equation to which they have very specific answers. So one of
the things I will be asking witnesses, especially those with fairly
broad-based national operations who have prestigious economics
operations within them, is if they would be willing to lend their ex-
pertise so that the administration can scrub the job estimation
questions as thoroughly as they have scrubbed the waste, fraud,
and abuse savings within the system.

I look forward to the testimony, Mr. Chairman.

Chairman Stark. Are there other members who have opening
statements? Mr. Grandy.

Mr. Grandy. Mr. Chairman. Thank you, Mr. Chairman. I want
to pick up slightly on what my colleague, Mr. Thomas, said about
numbers.

Last week when the First Lady appeared before the full commit-
tee I addressed a question about the cost of adding early retire-
ment benefits to the Clinton plan and what the 5-year cost of that
would be. She thought that would probably be $4.5 billion over 5

years. It was later revised by Mr. Magaziner that it would be $4.5
billion per year over 5 years, a significant change and shift, obvi-
ously, in the numbers, and something of which we have to be mind-
ful.

With that in mind, I am sure every member of this committee
knows that yesterday Mr. Andrews, Mrs. Johnson and myself,
along with other members of the Republican and Democratic Party,
introduced the "Managed Competition Act," I hope that, in addition
to the President's proposal, it will be addressed in this committee,
because although it is controversial and has proponents and oppo-
nents I think it deserves to be considered in the framing of this de-
bate.

My only purpose in offering an opening statement is although
the hearing is ostensibly to review the President's proposal there
are other proposals that I think are credible will emerge in the
final comprehensive benefit package that we may or may not pass.
I intend to use my position on this committee to address some of
those questions to our witnesses. Thank you, Mr. Chairman.

Chairman Stark. Thank you. I would like to repeat something
I said in the hearing the other day, which applies to the Chair as
well as each member. As the members well know, as we go through
this, for better or for worse, the numbers with which we will have
to deal are those numbers determined by the Congressional Budget
Office. We can save ourselves a lot of time and agony wondering
about what other estimators will come up with in terms of num-
bers, because when the final estimate comes down we are going to
have to deal with CBO and the Joint Committee on Taxation, and
take the bitter with the sweet.

I think we are all content that while we may think they make
mistakes, they are bipartisan in the way they make mistakes. I am
going to ask the committee's indulgence if we can stay away from
the numbers challenges until we all have the ones with which we
will have to try and bring this legislation together. That is not to
suggest that opinions as to the ability of a variety of approaches
to accrue savings or raise revenue certainly won't be interesting to
all of us. But to be critical of numbers until we have them, it is
as difficult for me to adhere to that admonition as I suspect it will
be anyone else.

If none of the other members has a statement, I would like to
introduce our first panel comprised of two witnesses representing
employer groups. Dr. Anne Marie O'Keefe, the director of public
policy of the Washington Business Group on Health and William
Archey, senior vice president for policy of the U.S. Chamber of
Commerce. He is accompanied by Kristin Bass. Welcome.

As I will suggest to all witnesses today, without objection, the
full written statements will be part of the record of this hearing
and I would ask all witnesses to limit their oral statements to 5
minutes. They may add to them or summarize them and that will
allow adequate time for members to explore particular issues of in-
terest in more detail.

With that request, I would like to ask you to proceed in any man-
ner you are comfortable. Dr. O'Keefe, do you want to lead off?

STATEMENT OF ANNE MARIE O'KEEFE, PH.D., J.D., DIRECTOR,
PUBLIC POLICY, WASHINGTON BUSINESS GROUP ON HEALTH

Ms. O'Keefe. Thank you, Mr. Chairman and distinguished mem-
bers of the committee. The Washington Business Group on Health
was founded 20 years ago by a small group of large employers who
realized they were paying for health care services for their employ-
ees, but they didn't even really know what it was they were buying.

Today WBGH includes almost 200 members, most of whom are
Fortune 500 companies and its 20-year history represents the evo-
lution of these large employers from merely passive payers for
health care services to aggressive purchasers of health care for
their employees. All of our member companies have gotten very
good at it.

The bottom line discovery was that these companies were not
able to control the discrete problems in health care — that is, prob-
lems with access and cost and the uneven quality of health care —
until and unless they controlled the way health services are deliv-
ered. That is why our signature buttons read, "It is the delivery
system, stupid." That is what our member companies figured out
and that is what they have been doing.

Health reform in this country didn t really begin at the political
level. Health reform has been going on in the business community
for years now in this country. These companies aren't complaining
about the problems in health care; they are fixing them. And they
have done so well in the last couple of years that they can only
imagine what they might have accomplished if the rest of the
health service delivery system were in better shape.

That is why WBGH and its members would find it an intolerable
irony if in an attempt to reform the health care system we fail to
build on what those large employers have done, but merely push
them out of the health care market. It is also an irony that at the
time when the Clinton administration is recommending streamlin-
ing and downsizing government, it is proposing what appears to be
a huge bureaucracy to replace employer involvement in health care.

The basis for our recommendations for reform are in what we
call organized systems of care which are the equivalent of what the
administration used to call accountable health plans. These are
systems that integrate the financing and delivery of health services
using multidisciplinary panels of providers, furnishing comprehen-
sive services to the people they care for in a coordinated manner
that is managed for optimal outcomes.

Our employers select these providers based on hard bargaining
and negotiation and they do it using criteria that they have devel-
oped to measure quality and cost containment. Originally, when
our employers went seeking for good health systems to make avail-
able to their employees, they discovered they didn't even have a
way to talk with these systems. When they asked questions, for ex-
ample, that would have relied on data management and integrated
medical records, the answers weren't available. So our employers
worked in partnership with these systems to develop that informa-
tion and those evaluation systems.

These long-term partnerships and ongoing communication and
negotiations between our employers and their health care systems
produce continuing quality improvements in these systems. And I

emphasize that it is quality that has driven these systems. By con-
centrating on the quality of care available to their employees, our
employers found their costs dropped the way they never did when
they attempted to use direct cost controls.

From this brief outline, it is easy to see our areas of agreement
with the administration. We encourage the networking of providers
into organized systems of care and the emphasis on quality. And
we certainly endorse the goal of universal coverage.

Our areas of disagreement are the very high thresholds for the
mandatory participation in the regional alliances, which would put
many small purchasing groups that have also experienced a great
deal of success out of business. We advocate a threshold of 100 for
mandatory inclusion in regional alliances and we have for several
years.

In addition, the President's proposal seems to contain many
other burdens to continuing employer involvement. For example,
the requirements to form corporate alliances appear to be so oner-
ous that we are afraid the employers will disconnect and walk
away. We also think it is very important to include the full popu-
lation in system reform and that means the Medicare population,
the very people who need coordinated, well-managed care the most.

For the same reason we endorse the principle of enterprise medi-
cal liability within a svstem of full tort reform.

Chairman Stark. Tnank you very much.

[The prepared statement follows:!

TESTIMONY OF ANNE MARIE O'KEEFE
WASHINGTON BUSINESS GROUP ON HEALTH

Good Afternoon. I am Anne Marie O'Keefe, Director of Public Policy for the Washington
Business Group on Health (WBGH). WBGH is the only national organization rqwescnting large
companies solely on issues related to health care. Our membership includes 200 of the nation's
largest employers, including both private and public members. Since 1974, WBGH and our
members have been involved in public and private sector efforu to improve health care delivery
and financing.

Over the years, WBGH's member companies have amassed great skill and experience in
providing high quality care for their employees at reasonable prices through negotiations and
selective purchasing. They have accomplished this despite the additional costs shifted onto them
from uncompensated care, and other inefficiencies in the health care system. Our member
companies are anxious to ensure that the entire system is reformed to enable them to continue
these programs.

I appreciate the opportunity to share what WBGH and our members have learned over the last
two decades at this important time in our history.

Delivery Syston Reform

The Washington Business Group on Health supports the President's emphasis on a ftindamental
restructuring of the health care delivery system. WBGH envisions a health care system by the
year 2000 that makes high quality health care available to all Americans, at an affordable cost,
and which builds continuous quality improvement into the health system itself. Achieving this
will require us to begin immediately making fundamental reforms in a partnership of government
with health care providers, purchasers and consumers.

The current problems with the quality of health care in this country, which are closely linked
to the cost problem, are symptoms of the fragmented way that health care is organized and
delivered. Most care is delivered on a piece work basis. Providers operate independently,
without accountability for results or cost.

Some believe that utilization review should insure the quality and continuity of health services.
But we have found that typically, UR programs simply attempt to "inspect in" quality. The
multitude of specialists who treat a seriously ill person are often poorly coordinated. Incentives
to improve quality and to manage costs are fewer and far between. Even liMse providers who
want to perform these roles for their patients usually lack the tools to do w.

WBGH's goal is to structure a different way of delivering care. WBGH believes that effective
health system reform must change how health providers are organized and how care is delivered,
as well as how care is fmanced. Absent such restructuring, and the information necessary to
do it right, proposals to control costs and other financing solutions would simply incorporate the
tremendous current costs of inefficient health care delivery.

We believe that enrollment of virtually the entire population, including Medicare beneficiaries,
into a limited number of competing, vertically-integrated networks of selected providers will
achieve the cost savings that have eluded past attempts at cost containment. A number of large
companies and purchasing groups comprised of smaller employers have already implemented
programs that closely resemble WBGH's vision. These companies and purchasing groups are
providing the laboratories to test the organized systems of care (OSC) concept.

WBGH stresses the need for continuing active management of these new systems by purchasers.
Allowing health care to organize itself around individual consumers' choice of plans without
sophisticated purchasers playing a role in specifying standards and directing volume, will not
solve our health system's key problems. We will only succeed if multiple large purchasers, each
with a stake in the health system's cost and quality, are permitted to drive OSCs to improve their
performance.

WBGH's vision builds on the success of current innovations underway by leading-edge private
and public purchasers, health care coalitions, managed care companies, hospitals, community
health centers, physicians and other allied health professionals, and consumers. For example.
Southwestern Bell, Honeywell and Southern California Edison have all used elements of the

organized systems of care strategy to hold their annual cost increases to levels well below the
national average. Kaiser-Permanente has done the same for its subscribers. Many of the small
to mid-size businesses with whom WBGH works through the National Business Coalition Forum
on Health have formed purchasing groups to encourage delivery systems to incorporate aspects
of OSCs

It is important to emphasize that these state-of-the-art programs are not designed solely to
achieve cost savings. They also promote quality care and provider accountability. For example,
Honeywell and Xerox have worked very closely with their provider networks to develop
standards by which these purchasers can measure the quality of care and monitor their delivery
systems' ability to continuously improve that quality and meet the objectives of cost containment.

For years, the Washington Business Group on Health has argued that we cannot fix the discrete
problems in our health system - burgeoning cost, uneven quality and limited access ~ until and
unless we fix the way health services are delivered. Our signature buttons read It's the delivery
system, stupid.

Organized Systems of Care

Our use of the term "organized systems of care" is comparable to the "accountable health
plans" currently being discussed in reform proposals, although we believe that we have defined
the term more completely. The concept is one of a unified and accountable health care delivery
system that serves all Americans and replaces the fragmented systems which operate today.

Organized systems of care (OSCs) are integrated financing and delivery systems that use
multidisciplinary panels of providers selected on the basis of quality and cost management
criteria to furnish comprehensive services. The systems incorporate incentives to provide only
appropriate and necessary care into their operations and are accountable to patienU and
purchasers on the basis of quality, cost, and outcomes.

Using one system that both provides care and assumes financial risk ensures efficient,
coordinated and well managed care.

Areas Of Agreement With The Health Security Act

WBGH supports many of the concepts included in the President's proposal, although I must
emphasize that ultimately, our position will be determined by how these concepts would be
applied in practice. While we reserve judgement on some of the particulars in the Health
Security Act, the concepts we support include the following.

WBGH and our member companies strongly support the inducements in the President's plan for
health providers to organize themselves into systems that merge accountability for service
delivery and fmancial risk. We also enthusiastically support the plan's incentives for consumers
to choose these efficient plans, rather than continue purchasing fee-for-service care that is
uncoordinated and unmanaged.

Our member companies have learned that cost controls neither control costs nor assure the
quality of care delivered to their employees. Rather, our companies have achieved success along
both of these dimensions by concentrating on quality, which can best be assured by systems that
manage care and coordinate services for optimal outcome. We heartily endorse those features
of the Health Security Act that would support these quality controls in the reformed health
system.

Like President Clinton, the member companies of the Washington Business Group on Health
support a uniform, national benefit package that would allow purchasers and consumers to shop
for health coverage on the basis of quality and cost. The emphasis on health promotion and
disease prevention in this benefit package is philosophically and financially wise. Many large
employers have found that health promotion and disease prevention programs are not only cost-
effective but also improve the health and well-being of their employees.

WBGH strongly supports the plan's proposals to simplify the administration of health services,

including standardizing claims forms and integrating medical records. We applzud efforts to
increase the number of primary care providers, and to fully utilize the training, skills and
experience of nonphysician providers.

Perhaps most important, we agree with nearly all Americans that health care must be available
to everyone, regardless of the circumstances of an individual's past medical history, employment
status or personal wealth.

Small Market Reform And The HIPC Threshold

Health reform must redesign the purchaser market to pool individuals and fragmented small
groups into coalitions that are large enough to achieve economies of scale. The current
fragmentation of buyers' purchasing power is one of the key reasons our health care system is
so wasteful and costly. The present small group market is the most extreme manifestation of
this problem.

For all practical purposes, small employers have no market power. That is, a small group's
decision to switch carriers has little impact on the overall markets of insurers and providers.
This gives insurers and providers little incentive to respond to small groups' needs. Similarly,
many of the small insurers operating in the small group market have little leverage over
providers.

In contrast, pooling small employers with 100 or fewer employees would give these small groups
substantial leverage over insurers and providers. Carriers participating in these small group
pools would cover enough lives to gain substantial leverage over providers. This leverage could
be used to avoid cost shifting, to obtain favorable financial arrangements, and to insist that
providers meet reasonable performance standards.

Purchasing cooperatives can provide small businesses with the market clout, technical expertise
and coverage options which have enabled many large employers to contain cost and improve the
quality of care offered to their workers.

Malpractice reform

WBGH commends President Clinton's recognition that America's medical liability system must
be part of comprehensive health system reform. We do believe, however, that the President has
not gone far enough to ensure that the malpractice system effectively deters negligent medical
care, resolves claims in an efficient and equitable manner, and maintains access to needed
services while encouraging appropriate quality care. Enterprise medical liability is an essential
component of comprehensive health system reform.

To reinforce the accountability of an organized system of care in all aspects of its performance,
medical liability would be an effective method of deterring negligent care. Enterprise liability
would ensure that all malpractice claims are filed against the organized system of care rather
than against individual practitioners, would provide a strong incentive for OSCs to maintain
quality while controlling costs.

Conclusion

WBGH is very excited about Administration and Congressional attention to the need for
significant restructuring of the health care delivery system. To ensure continual improvement
of the quality and cost-efficiency of these systems, WBGH believes the purchaser market must
build on and encourage current large employer, and purchasing coalition efforts.

Chairman Stakk. Mr. Archey.

STATEMENT OF WILLIAM T. ARCHEY, SENIOR VICE PRESI-
DENT FOR POLICY AND CONGRESSIONAL AFFAIRS, U.S.
CHAMBER OF COMMERCE

Mr. Archey. Thank you, Mr. Chairman, and I would note that
I am accompanied by Kristin Bass, our manager for human re-
sources pohcy who has had 10 hard years of experience with health
care delivery and other aspects of the health care system.

It is a pleasure for me to be representing the U.S. Chamber fed-
eration, which includes some 3,000 local and State chambers of
commerce, and 1,200 trade and professional associations, 68 Amer-
ican chambers of commerce overseas and 215,000 direct business
members of which 96 percent employ fewer than 100 people.

I would like to, before talking about specifics of the Clinton plan,
make some, if you will, prefatory remarks to provide context. Irre-
spective of what you might have read in today's newspaper, we
have not endorsed any specific proposal.

We, in fact, find there are things that we like in the President's
proposal and things we do not like in the President's proposal.
There are a number of things in the Managed Competition Act of
1993 that we like a great deal and there are some things in that
that we do not like. But we have not endorsed any proposal, nor
do we intend to do so for some time.

The reason for that is that this is without question the most com-
plex issue facing the chamber and its membership, and probably
will be the most complex issue that will face the chamber and its
membership for the remainder of this decade.

There is a clear need in our judgment in being responsive to our
membership and acting responsibly on behalf of that membership
to in fact educate the members on the various proposals and to give
them the facts and that is what we intend to do. A very concerted
effort has begun that will culminate in a series of three national
town meetings on the issue of health care proposals that will take
place over the next few months.

This is not an issue — as we have come to realize through our sur-
veys and I know the members of this committee have come to that
conclusion — this is not an issue on which you can game your con-
stituents or we can game our members. This is an issue in which
ultimately our members are going to pull out a piece of paper and
pencil and they are going to start running out the numbers and
looking at how it affects them and what they get for it. The issue
is going to be based on a clear articulation of the facts.

On that note I would like to say something, because I think there
has been a misunderstanding about small business being obstruc-
tionist to the issue of health care reform. I would like to note that
I include in my testimony an article from the Journal of American
Health Policy. I would like to quote briefly some excerpts from that
article written by two academics and a principal from the KPMG,
the old Peat-Marwick accounting firm.

The opinions of srr.f.n business on national health care reform have changed pro-
foundly over the last few years. Small business should not be viewed as a roadblock
to reform, but rather as a gmup that needs to be educated.

Our survey shows that when presented with both sides of the case for reform
many businesses are willing to sacrifice for the greater goal of creating positive
change in the system.

It references an issue of debate, the whole question of HIPCs or al-
liances or health care purchasing cooperatives.

The survey noted that small business members given the option
of purchasing insurance directly or through a HIPC, if they
thought the HIPC would be no better than a neutral deal, that is,
no saving of costs, 62 percent of small business prefers to buy it
directly. If there is a 15 percent savings in health insurance going
through a HIPC, 80 percent of small businesses favor the HIPC.

The interesting thing is that what most of our small businesses
don't seem to know is what do you mean when you talk about a
HIPC. That is one of the issues that I think anybody who purports
to represent their members has got to, in fact, find out and accu-
rately convey. I would also note to you as a point in terms of at
least the proposals on the table, our preference is very much to the
construction of the HIPCs as is found in the Managed Competition
Act of 1993.

On the specifics of the Clinton proposal, we have laid out a num-
ber of things in my prepared statement. I would briefly note to you
that we are in favor of universal coverage. We are in favor of the
notion of shared responsibility to get to it. We have a very large
number of problems on the issue of the health alliances, including
the question of the savings and revenue assumptions underlying
the President's proposal.

On that note I will terminate my opening remarks and await
your questions. Thank you, Mr. Chairman.

[The prepared statement and attachments follow:]

STATEMENT

THE CLINTON ADMINISTRATION HEALTH CARE REFORM PROPOSAL

before the

SUBCOMMITTEE ON HEALTH

of the

HOUSE COMMITTEE ON WAYS AND MEANS

for the

U.S. CHAMBER OF COMMERCE

William T. Archey

October 7, 1993

Good morning, Mr. Chairman and members of the Subommittee. I am William T.
Archey, Senior Vice President for Policy and Congressional Affairs of the U. S. Chamber of
Commerce. I appreciate this opportunity to present the Chamber's views on an issue that has
become almost as central to us institutionally as it is to each American personally.

As you may know, the Chamber federation includes some 3,000 local and state
chambers of commerce, 1,200 trade and professional associations, 68 American Chambers of
Commerce abroad, and 215,000 businesses, 96 percent of which employ fewer than 100
people. Roughly two-thirds of these small companies, and virtually all of our larger
members, currently provide some form of health insurance for their workers. In the past six
years, the overall cost of health insurance for these employers has doubled. Some have been
forced to cut back or drop insurance coverage, and many others fear they will have to do the
same if relief from escalating costs is not forthcoming. These rapidly growing health care
costs have hit small businesses particularly hard. Unlike larger companies, whose size enables
them to contract with providers and insurers for discounted services, small companies pay full
freight. In addition, they are burdened by costs shifted by hospitals and doctors to make up
for uninsured patients unable to pay their bills.

President Clinton deserves credit for moving the health care debate to center stage. As
is probably inevitable in something so complex, his proposal has strengths and weaknesses.
The Chamber has serious concerns about some aspects of the Clinton plan, such as:

• Regional health alliances that include most of the population instead of
focusing on small business.

• A huge new bureaucracy to regulate, monitor, and ultimately tax
employers.

• State flexibility to establish independent systems.

• Government-specified premium caps.

A requirement that employers pay 80 percent of the premium for
employees.

• Optimistic savings and revenue assumptions.
We will elaborate on these concerns later in this testimony.

The Chamber supports the need for universal coverage and recognizes that it can
only become a reality and be paid for through the shared responsibility of employers,
employees, and government. This principle is reflected in the Clinton plan. In addition, some
specifics of the Clinton plan consistent with Chamber policy recommendations include:

Subsidies to help small businesses and low-wage workers afford health

Portability of coverage.

• Streamlining the processing of health insurance claims.

• 100 percent deductibility of basic health insurance costs for the self-
employed.

Chamber members recognize that employers have a critical role to play in reforming
our health care system. We are in favor of a system that achieves affordable health insurance
coverage by building on the strong current base of employer-provided health benefits. Our
members maintain that health insurance should remain part of the compensation package.
This may seem surprising in light of the small-business alarms sounded so frequently in the
news. What we have found, though, is that small business views on health care policy do not
necessarily follow traditional ideological lines. We recommend to your attention a study
published in the September/October issue of the Journal of American Health Policy (copy
attached). Its authors found a variety of views within the small business community and
noted diat "small businessmen and women are more open to health care reform than
conventional wisdom holds." Most small businesses that do not provide health insurance to
employees cite high cost as the barrier. If convinced that health insurance could be made
more affordable through pooled purchasing, four-fifUis of small businesses surveyed would
favor such a system.

Employers, however, have no wish to claim sole responsibility for insuring the
American population. Through shared responsibility, we could make sure that no one would
be permitted to opt out of the system or its obligations, and also that no one would be ruined
in the process. At the same time, companies now providing insurance would be freed from
the additional costs shifted to their bills or premium rates to make up for the uninsured.

While we are convinced that health care costs can only be contained if everyone is in
the system and playing by the same rules, we recognize that some individuals and employers
are unable to afford insurance. We believe that individuals should be required to have
insurance coverage, while eniployers should make insurance available to workers and
dependents and contribute something to its cost However, as we told the White House task
force from the very beginning, the Chamber opposes any health insurance requirement that
does not include adequate subsidies for low-wage workers and their employers.

We think this is an area vAnae the Administration listened to us. The Clinton proposal
incorporates both a small-business subsidy in the form of an expenditure cap on percentage of
payroll and an individual subsidy for those ^^4lose incomes are below 150 percent of the
poverty level. We think these inx)visions would help make insurance affordable.

To elaborate on the concerns sketched earlier:

Regional health alliances that are so large they absorb virtually the entire population.
The Chamber has long supported pooled purchasing arrangements (whether called alliances, or
HlPCs, or whatever) for small businesses. Statistics indicate that it is among employees of
small businesses that the greatest coverage gaps exist, and it is these companies that need to
band together to achieve economies of scale. In this way, small businesses and indi'.iduals
will finally have the leverage to compete against larger companies in the market for health
insurance. Many of our smaller members eagerly welcome the idea of one-stop shopping —
that they can call and get from a single source all necessary information about health care
plans, prices, and quality without having to spend hours on the phone calling around to
agents. These members remind us that they are in the business of selling hardware or lumber
or manufacturing coolers and have neither the time nor the expertise necessary to sift dirough
health insurance policy language to find the appropriate features and the best deal. To
concentrate assistance where it is needed, the Chamber would set the ceiling for required

participation in a regional alliance at 100 employees. To guard against adverse selection, we
would advise against allowing large companies to opt into the alliance.

Larger companies should be permitted to choose commercial insurance, form
purchasing groups among themselves, or self-insure. Large self-insured companies have
driven much of the innovation in cost containment, managed care, and welhiess programs.
We believe that their energy and creativity should be preserved in our health care system. If
such companies no longer are able to reap the cost savings from improving their group
experience, there is little incentive for them to continue to develop and maintain such
programs. Large companies community rate their employees, and do not discriminate on the
basis of health status. Reform should focus on the parts of the system that don't work ~ not
the parts that do work..

• Over-reliance on government regulation and bureaucracy to contain health care
costs and oversee the operational details of the health care system. The Clinton plan would
vest substantial regulatory power in a new National Health Board, granting it authority for
tasks ranging from modifying the guaranteed benefit package to setting the national health
care budget to disciplining alliances and states that fail to meet budget targets. Such a weight
of federal oversight is bound to hamper efficient operation of the market, and is counter to a
professed intent to streamline the health care bureaucracy that aheady exists.

State flexibility to establish separate health care systems. In today's competitive
global economy, such fragmentation is ill-advised. Multi-state companies potentially will be
forced to squander resources on complying with 50 different sets of rules at a time when
American companies need to focus on improving productivity to meet foreign competition.
To help states go their own ways, the Clinton proposal makes a series of changes to the
Employee Retirement Income Security Act of 1974 (ERISA) that would vitiate the preemption
provisions at its very center. ERISA preemption now allows self-insured plans to rely on a
single federal regtilatory standard; mdeed, it was the creation of such a standard that
persuaded the business commimity to support ERISA at the time of its enactment.

• Government-specified premium caps, rather than market forces, setting the rate at
which health insurance premiimis could increase. A properly functioning market is a more
efficient resource allocator than a government agency. The adoption of premium caps would
freeze in place historical inefficiencies, such as regional variation in practice patterns and
pricing. For example, Mrs. Clinton has noted that average per-patient Medicare costs in the
Boston area are twice as high as those in New Haven, without any discemable difference in
overall patient well-being.

A premium split that places a disproportionate burden on employers. Requiring
employers to pay 80 percent of the health insurance premium insulates employees from the
consequences of their own purchasing decisions. Consumers need to be aware of how much
health care really costs. We also question basing the required payment on the weighted
average premium in a regional alliance. Given that all plans would have to offer the
guaranteed benefit package, consumers could be encouraged to choose less expensive plans if
the employer contribution were pegged to the average of the lower third or half of plans in
the alliance.

Savings and revenue assumptions that could prove to be unrealistic. Expanding
coverage to bring in an estimated 37 million uninsured at the same time that we guarantee a
generous benefit package to all, provide the elderly %vith prescription drug coverage, and
subsidize coverage to early retirees caimot help but be an expensive proposition. It may be
that efficiencies can be realized, fraud and abuse curtailed, and wages and profits increased
(reflecting health cost savings), thus generating higher tax revenues. The Chamber would be
happy to see such results. In the meantime, however, we are wary of counting our chickens
before they hatch, and worry about what the fmancing fall-back might prove to be.

One of the reasons for the President's commitment to health care reform is his desire
to bring the federal deficit under control. Since this cannot occur without constraining costs

in federal entitlement programs, the Chamber believes that Medicare and Medicaid must be
included in reform measures. As people reach Medicare eligibility, we foresee their choosing
to remain in their existing care networks rather than transitioning to an artificially preserved
fee-for-service environment We support the Clinton Administration's decision that Medicaid
beneficiaries should be brought into the reform mainstream inunediately, obtaining coverage
through a purchasing cooperative like any other individuals, but with government assistance to
pay the premiums. We also agree that the Medicaid population should be pooled separately
for premium purposes, so that small businesses participating in the cooperative are not put in
the position of subsidizing the relatively sicker Medicaid population.

Medical malpractice reform is a necessary component of health care reform. The
President's proposal includes provisions meant to address this concern, but it does not go far
enough to produce real changes in the way physicians practice medicine. So long as doctors
still feel the need to practice defensive medicine, serious savings in this area will not be
realized.

The Chamber recognizes, as do President and Mrs. Clinton, that this proposal is by no
means immutable. It represents the begitming of serious debate and of a public education
program. The Chamber is heartened by an emergence of some common themes among a
broad spectrum of reform proponents. These themes include portability of coverage, an end
to pre-existing condition exclusions, administrative .stre amlinin g, and 100 percent deductibility
of health insurance costs for the self-employed.

The President's health care plan is one of a number of proposals, several of which
deserve serious consideration. The Chamber is encouraged by yesterday's introduction of the
Managed Competition Act of 1993, with its bipartisan sponsorship, as a valuable addition to
the debate. The Chamber will continue to play a constructive role in the formation of
national health care policy by advocating the concerns of the business community as we work
to forge a national consensus and enact legislation. We look forward to working with the
members of this subcommittee in that process.

Small Businesses' Changing Views
on Health Reform

Our national sample of 750 randomly chosen firms with fewer than 50 employees reveals surprising
findings about the traditional views of small business on health care reform. A substantial segment
of the small business community is sympathetic to health care reform, including such controversial

measures as mandating that all employers contribute to the coverage of their workers, limits on

health care spending, and altering the tax treatment of employer contributions for health insurance

. Without premium savings, fewer than half of small businesses support the concept of health

insurance purchasing cooperatives, With premium savings, a majority support it

By Gail A. Jensen, Robert J. Morlock, and Jon R. Gabei

In the Clinton Administration's
quest for comprehensive health care
reform, few interests will exert
greater influence through the polit-
ical process than small business.
Because Americans tend to roman-
ticize small businesses, the small
business lobby — along with the
elderly — is one of the most influ-
ential interest groups in Washing-
ton. Small business is also seen as
the engine of economic growth.
Between 1982 and 1990, two-thirds
of the new jobs created were in the
small business sector (Kent, 1993).

The dilemma facing policymak-
ers is that the same small business-
es that fuel economic growth are
also where an estimated SO percent
of the nation's 36 million unin-
sured Americans work (Congres-
sional Budget Office, 1991). The

Gail A. Jensen, PhD.
professor, and Robert J. Morlock is
research assistant. Institute of Ger-
ontology and Department of Eco-
nomics, Wayne State University, De-
troit. Jon R. Cabel is director of
employee benefits research at KPMG
Peat Marwick Inc., Washington DC.

Health Insurance Association of
America found, in their national
survey of employers, that fewer
than 30 percent of firms with 10 or
fewer workers offer health insur-
ance to their employees (Lippert
and Wicks, 1991). To achieve uni-
versal coverage, preliminary ver-
sions of the Administration's je-
fonn package call for mandatory
contributions by all employers to-
ward the cost of health coverage
for their employees. Small employ-
ers would send their contributions
to a health insurance purchasing
cooperative (HIPC, also termed
health alliance) where their employ-
ees would select from a menu of
accotmuble health plans.

The small business lobby, as rep-
resented by the National Federa-
tion of Independent Businesses
(NFIB), is adamantly opposed to
the Administration's reform pack-
age. For example, NFIB refused a
White House invitation to appear
on a small business panel for a
March 29, 1993, health care task
force meeting. Yet the views of the
small business community are di-
verse and occasionally deviate ftom

those of the small business politi-
cal lobby.

Using a national survey of 750
firms with fewer than SO workers
conducted in the spring of 1993.
we examined the views of the small
business community on current pro-
posals for health care reform. Small
business owners were asked about
the need for reform of the health
care system, their views about the
fairest way to treat employer con-
tributions to health benefits under
the tax code, and how they felt
about the basic principle of requir-
ing all employers to contribute to
the cost of health insurance. Our
findings suggest a variety of views
within the small business commu-
nity and that small businessmen
and women are more open to health
care reform than conventional wis-
dom holds.

In April and May 1993 the sur-
vey research firm National Re-
search Inc. of Washington DC con-
ducted telephone interviews with
7S0 small businesses nationwide.

Reprinted vyith permission

The sample was drawn from the
Dun & Bradstreet Corp. (D&B) list
of private businesses nationwide
that employ fewer than SO work-
ers. Survey participants were drawn
randomly from D&B's list after
stratifying by size and location.
The sample excluded businesses
with no employees and govern-
ment employers. In advance of
the interview, business owners
were sent a letter inviting them to
participate in the study and indi-
cating when they would be con-
tacted for their interview. At the
time of the survey, the interview-
er asked to speak with the person
most knowledgeable about the
fringe benefits the business offered.
In most cases that person was the
owner, president, or office manag-
er of the firm. In all, 1,721 firms
were conucted, and 750 agreed to
participate in the survey. This re-
sponse rate of 44 percent is typical
of small business surveys.

Reflecting the probability of se-
lection, each employer was as-

signed a weight. This allowed us
to calculate national statistics rep-
resenting all private businesses
employing fewer than SO work-
ers. The margin of error on esti-
mates from the survey is approxi-
mately plus or minus four per-
centage points.

Size Determines Giverage

We found that SO percent of all
businesses with fewer than SO
workers do not offer health bene-
fits as a fringe benefiL The size of
a business, as measured by the nimi-
ber of people it employs, is the
single most important predictor of
whether it provides health insur-
ance. The larger the firm, the more
likely it is to provide coverage.

Our survey found that the per-
centage of firms offering health in-
surance is 44 percent among firms
employing fewer than 10 workers,
70 percent among firms employing
10 to 24 workers, and 85 percent
among firms employing 25 to 49

I Figure 1

! The Percentage of Small Firms That OfFer Health
! by Size of Rrm, 1993

Source: Wayne Stale Univenity/KPUG Peat yarwiek, Saney cf 750 Small
Firms. Spring 1993.

workers (see Figure 1). Among all
firms with fewer than 50 workers,
the low overall percentage offenng
coverage — 51 percent — reflects
the fact that the vast majority of
firms in this size range employ few-
er than 10 workers.

Reasons Against Coverage

Our survey asked firms that do
not provide health insurance to in-
dicate why. The most frequent re-
sponse was that current premiums
were simply too high. Eighty per-
cent of small businesses indicated
that high premiums were a "very
important" factor in the decision
not to provide beneflts, and anoth-
er 1 percent indicated that they were
a "somewhat important" reason (see
Figure 2). Other often cited reasons
for not offering insurance were that
the firm's profits (79 percent) and/or
premiums for insurance (75 per-
cent) were too uncertain from year
to year to make a commitment to
provide health benefits.

Our survey reveals that most
small businesses maintain a high
degree of continuity in their insur-
ance offerings. We found that many
firms (S6 percent) that chose not to
offer insurance feared that if they
did provide it, they might have to
take it away at some future date. It
was unusual to find firms that did
not provide insurance at the time
of our stirvey had ever provided it.
Only 1 7 percent indicated that they
had. Likewise, nearly all firms (89
percent) offering insurance at the
time of our survey had offered it
for at least the past three years.
These findings of a high degree of
stability in the insurance offerings
of small businesses confirm the
findings of earlier surveys on this
issue (Lichtenstein and Witte,
1991). Many small businesses, and

XDURNAL OF AAAERICAN HEALTH PCXJCY

particularly those with fewer than
10 employees, report that qualify-
ing for a policy at group rates is
ofien difficult Thirty-nine percent
of the firms not offering insurance
reported that their inability to
qualify for coverage at employer
rates was a very important reason
for not offering coverage. Yet
when asked why they were un-
able to qualify, only about half
could give a specific reason. The
three explanations, identified with
roughly equal frequency, were:
the firm was too newly established;
the type of business or industry the
firm made it ineligible for a policy;
or one or more employees could not
qualify for insurance because of
health conditions.

Desire for Reform

Participants in the survey were
asked their opinions about some
potential reforms of the health
care system. Regardless of wheth-
er they provide health coverage,
most small businesses (75 per-
cent) say they favor a major re-
structuring of the health care sys-
tem, 1 1 percent are opposed to ma-
jor changes, and the rest gave no
opinion. Support for major changes
in the system, however, is not syn-
onymous with support for any one
particular reform strategy.

To assess the direction in which
small business owners felt public
policy should go, we asked respon-
dents to comment on the appropri-
ateness of several possible reforms
to the health care system. Specifi-
cally, we asked them how they felt
about: (1) requiring all employers
to contribute toward the cost of
health insurance for their employ-
ees; (2) imposing overall limits or
budgets for health care spending;
(3) changing the tax treatment of

Figure 2

Why Small Firms Soy They Don't Offer Health

Source: Waynt Slaie University/KPMG Peat Uarwick. Survey of ISO Small
Firms. Spring 1993.

employer contributions for health in-
surance; and (4) adopting a "man-
aged competition" model for secur-
ing workers' coverage rather than a
direct employer provision model.

To elicit their views on the first
issue — the desirability of mandat-
ing that employers contribute to
the cost of health insurance — the
interviewer said, "Some employ-
ers are concerned about proposed
legislation that would mandate all
employers to provide or contribute
to the costs of health benefits for
their employees. Others contend
that a mandate is the only fair way
to see that everyone has health in-
surance, and that when Employer
A doesn't provide coverage, other
employers indirectly pay for the
coverage of /4's workers. How do
you feel about requiring all em-
ployers to contribute for the cover-
age of their employees?"

We wanted the respondent's

opinion after he or she had heard at
least part of the rationale for such a
requirement. Small business own-
ers were then asked to indicate
whether they strongly support man-
dated contributions, somewhat sup-
port them, are neutral, somewhat
oppose, or strongly oppose them.

Our survey found that close to
half (42 percent) of all small busi-
nesses support the principle that em-
ployers should be required to con-
tribute to the cost of health insurance
for their employees. Even among
firms not currently offering insur-
ance, close to one-third (29 percent)
say they support such a requirement.
Among firms now providing cover-
age, S 1 percent favor mandated con-
tributions (see Figure 3).

This level of support for a man-
date is much higher than earlier
surveys of small businesses have
found. For example, a 1989 survey
of member firms of the NFIB found

SEPTEMBER/OaOBER 1993

Figures

Small Firms Offering Health Coverage Have Different
Attitudes About Mandated Coverage Than Firms Declining
Coverage

,_ xoveraqe
54X

Firms offering coverage

Source: Wayne Stale Univeriily/KPMG Peal Marwick. Survey of 750 Small
Finns. Spring 1993.

that only 2S percent agreed that
"employers have a responsibility
to provide employee health insur-
ance," and only 24 percent sup-
ported the statement that "employ-
ers should be required to provide a
basic level of employee health insur-
ance" (Hall and Kuder, 1990). Re-
spondents to the NFIB survey were
overwhelmingly small firms, and, at
least in terms of their size and indus-
try composition, were similar to the
firms covered by our survey.

It is possible that the increased
support for a mandate may stem
from our questionnaire's format.
Unlike previous opinion surveys of
small business, our survey attempt-
ed to give the respondent informa-
tion on the case for various reforms.
After hearing the argtmient for the
proposition in question, business
owners may have been more likely
to support it as reasonable. It is
also conceivable that the particular

argument for a mandate that we
chose to present — that firms not
offering coverage end up as free-
riders to the health care system —
evoked either a sense of guilt or
disturbance among some respon-
dents. This might explain why so
many (29 percent) of the firms that
currently do not offer coverage es-
sentially favor what amounts to a
new requirement and cost for them.
On the issue of imposing over-
all budget limits for health care
spending, respondents were sim-
ply asked to indicate whether they
strongly support such measures,
somewhat support them, are neu-
tral, somewhat oppose, or strong-
ly oppose them. Many small busi-
ness owners (66 percent) indicate
that they would like to see over-
all limits or budgets for health
care spending imposed as part of
a health care reform strategy.
Firms that want a major restruc-

turing of the health care system
are most likely to support this
particular reform.

To assess business owners'
opinions about changing the cur-
rent tax treatment of health insur-
ance, we took a different ap-
proach. We asked small business
owners which of three approach-
es they thought would be the "fair-
est" way to treat employer contri-
butions for health coverage: (1)
"treat all employer contributions
for health insurance as tax-free,
as they are today"; (2) "tax em-
ployer contributions for health
insurance the same as wage in-
come"; or (3) "treat employer con-
tributions as tax-free up to the
lowest cost plan in an area." Be-
fore giving them these choices,
however, the interviewer said,
"Currently, employers' contribu-
tions for health insurance are not
treated as taxable income of em-
ployees. Some economists con-
tend that this encourages Ameri-
cans to over-insure and choose
Cadillac health plans. Others say
that taxing workers for employ-
ers' contributions for health in-
surance would place a greater bur-
den on the middle class. Which of
the following is the fairest way to
treat employers' contributions for
health coverage?"

As with our previous question
about required contributions, we
wanted to obtain business owners'
opinions about changing the tax
code after they had heard at least
part of the case for reform.

Only a slim majority (60 per-
cent) of small businesses believe
that maintaining the status quo is
the fairest approach to taxation
(see Figure 4). Fifty-two percent
of firms that do not now offer
coverage believe that the current
tax-free status of all employer

XDURNAL OF AAAERICAN HEALTH POUCY

contributions to health benefits
should be preserved; among firms
that offer insurance a slightly
higher percentage, 65 percent, be-
lieve so. Just over a quarter of
businesses (26 percent overall)
believe a tax cap on employer con-
tributions is fairest. A small mi-
nority (9 percent), concentrated
largely among firms that do not
now offer insurance, believe that
employer contributions for health
insurance should be treated the
same as wage income.

Managed Compeh'tion Views

On the matter of managed com-
petition as a model for health care
reform, we asked small business
owners to indicate which of two
approaches they would prefer if
they were required to contribute to
the cost of workers' health insur-
ance. The choices described were
providing group health insurance
directly themselves, or contribut-
ing to the cost of securing workers'
insurance through a HIPC.

The HIPC system that small
businesses were asked to consider
was described as entailing the cre-
ation of new statewide purchasing
cooperatives specifically for firms
in their size class (fewer than SO
workers). Employers would be re-
quired to pay a contribution on be-
half of each of their workers, which
would be used toward the lowest-
cost certified plan in their area. That
contribution would then buy an
employees' health insurance
through the local HIPC, which would
ofTer a wide choice of health plans to
employees and would relieve small
businesses of having to administer
benefits themselves. Survey respon-
dents were asked if they would pre-
fer to pay the contribution to a HIPC
or to provide group insurance them-

Figure 4 . ,

Almost Half of All Small Rrms Are Willing To Change the
Tax Treatment of Employer Contributions to Health
Insurance

Note: Percenuges do not siun to 100 due to rounding.

Source: Wayne State Univeriity/KPMG Peat Marwick Survey of 750 Small

Firms, Spring 1993.

selves. The firms were also asked
what price incentives would cause
them to prefer the HIPC model to
providing the insurance themselves.
Small business owners' attitudes
toward managed competition de-
pend critically on the perceived sav-
ings associated with that approach.
If a required HIPC contribution will
cost finns the same amoimt as if
they purchased health insurance for
their employees directly, then most
small businesses (61 percent) are
unwilling to endorse a HIPC system
(see Figure 5). In this case, 43 per-
cent prefer providing health benefits
themselves, and 19 percent say they
"don't know" which approach they
prefer. Firms not now offering in-
surance are much more supportive
of HIPCs than firms currently pro-
viding benefits, yet fewer than half

of them endorse the concept (46
percent favor HIPCs compared to
32 percent among firms offering
coverage).

If HIPCs can save small busi-
nesses money, however, then sup-
port for them is actually very
strong. Four-fifths (79 percent) say
that they would favor a HIPC-type
system if it can save them IS per-
cent over providing insurance di-
rectly. Thirteen percent say that
they would prefer to provide health
insurance themselves, and the rest
(8 percent) say they "don't know."
If HIPCs can save businesses SO
percent over the cost of direct pro-
vision, then nearly all firms (90
percent) endorse them. Interesting-
ly, most of the firms that changed
their opinion of HIPCs when the
relative price was lowered were

SEPTEMBER/OaOBER 1993

FiguraS

Under What Circumstances Will Small Firms Support
HIPC-Slyle 'Managed Competition' Over Direct
Provision

Note: Percentages may not sum to 100 due to roundmg.

Source: Wayne Slate University/KPMG Peat Manvick Survey of 750

Small Firms. Spring 1993.

Figure 6

PoliHcal Subgroups Among Small Business

53%

i Source: Wayne Slate University/KPMG Peat Marwick Survey of 7S0 Small
\ Firms. Spring 1993.

finns that cuirently provide bene-
fiu. The fact that they reversed their
preferences so readily reflects the
obvious importance they place on
saving money on health insurance.
Lowering their costs is their pri-
mary goal, and if HIPCs can take
them there, they will support them.

For our initial HIPC question
(about preferences if the employ-
er's costs under both approaches
were the same) the high percent-
age of small businesses that say
they "don't know" which they pre-
fer (19 percent) suggests that
many of them still don't under-
stand how a managed competi-
tion system would work, and they
may not understand the full im-
plications of it for their business.
Even without such an understand-
ing, however, we found that many
of them converted to supporting
a HIPC system when they per-
ceived savings under that ap-
proach.

These findings convey two mes-
sages. First, policymakers will need
to carefully explain alternative re-
form proposals if they wish to elic-
it the true preferences of small busi-
nesses. Second, the overriding con-
cern of small businesses is to save
money on the cost of insurance.

Political Subgroups

The above discussion suggests
that there is considerable diversi-
ty among small businesses in their
opinions of various reforms. Al-
though characterizing firm views
on a reform-by-reform basis is
useful for summary purposes, ex-
amining the data in that way does
not tell us whether there are cer-
tain sets of opinions that tend to
go together. For example, do
firms that express opposition to
one measure also tend to reject

XDURNAL OF AMERICAN HEALTH POUCY

other refonns, or is there any con-
gruence in responses? Alterna-
tively, to what extent do supporters
of change in one area overlap the
suppoiters of change in other areas?
We examined our data to deter-
mine whether there was a naniral
segregation of small businesses ac-
cording to their opinions on the four
policy issues discussed in the prior
section. Within the small business
population, we were able to identi-
fy three distinct subgroups of firms:

(1) those that support several of
the reforms we had them consider,

(2) those who oppose almost all of
them, and (3) those who are some-
where between these two camps.

The first group, who can be
described succinctly as "reform-
ers," consists of firms that say
they want a major restructuring

of the health care system and who
then back up that position by sup-
porting change in at least two spe-
cific areas. Just over half (S3 per-
cent) of all small businesses are
reformers by these criteria (see
Figure 6). They uniformly sup-
port global limits on health care
spending (91 percent), and most
(62 percent) also believe that em-
ployers should be required to con-
tribute to the cost of health insur-
ance. They are split, however, in
their views on changing the tax
code and on the desirability of
HIPCs. Fifty-five and 58 percent
of refomiers, respectively, favor these
two possible reforms. As a group,
reformers encompass all sizes and
types of firms. Indeed, their compo-
sition closely mirrors the genera!
population of small businesses.

The second group are best de-
scribed as "defenders of the su-
tus quo." They are small busi-
nesses that say they oppose any
restructuring of the system and
who then go on to reject (perhaps
not surprisingly) all, or all but
one, of the specific reforms we
discussed. They comprise nearly
one-fifth (17 percent) of all small
businesses. If defenders are will-
ing to support anything, it is al-
most always changing the current
tax treatment of employer contri-
butions for health insurance.
Twenty-two percent of defenders
do not consider the current tax
treatment to be the fairest ap-
proach to taxation, but many of
them are still undecided as to the
best alternative. Firms with more
than 10 workers, and those offer-

Support for HIPC-Style 'Managed Competition" Varies Sharply by Political Subgroup

Question

Reformer
Group

Defender
Group

Group

Suppose ihe required HIPC contribution for employee health insurance were to cost you the same as if you purchased
health insurance for your employees directly. Which would you prefer to pay a contribution to a HIPC or provide the
group insurance directly yourself?

Prefer to pay the required HIPC contribution
Prefer to provide group insurance though the firm
Don't know

What if the required HIPC contribution were to cost your firm 15% less?

Prefer to pay the required HIPC contribution
Prefer to provide group insurance though the firm
Don't icnow

What if the HIPC contribution were to cost your firm 50% less?

Prefer to pay the required HIPC contribution
Prefer to provide group insurance though the firm
Don't know

Source.- Wayne Suue University/KPMG Peat Marwick Survey of 750 Small Firms, Spring 1993.

SEPTEMBER/OaOBER 1993

ing health insurance, are most
likely to defend the sutus quo.
Not surprisingly, defenders are
more than twice as likely as re-
formers to reject HIPCs as a
means of providing coverage (62
percent compared to 27 percent
favor direct provision) (see Fig-
ure 7). Their attitude toward
HIPCs is consistent with their re-
jection of the other reforms that
were presented to them.

The third group, which ac-
counts for 30 percent of small
businesses, are firms that do not
fit either of these profiles. We
call them the "betwixted" group.
They are typically firms that say
they want major restructuring of
the health care system, but yet
they reject the specific reforms
we offered them. Obviously, these
firms are frustrated with the cur-
rent system. Their failure to em-
brace the measures we described,
however, could be interpreted a
number of ways. They may favor
some particular reform not dis-
cussed during the interview, or
they may simply not know what
they want. For example, we ne-
glected to ask about support for a
single payer all-government sys-
tem, yet reportedly many small
businesses favor this approach to
providing universal access (Ed-
wards et al., 1992). Our omission
of this alternative is a limitation
of our survey. Also, since the re-
forms that we did discuss with
them could entail eventual costs
to either firms or individuals
(some nonpecuniary), respondents
who perceived these costs might
have rejected the measures on that
basis. While conceivable, we
think this possibility is less like-
ly than the first two mentioned.
Nonetheless, we can only specu-
late on the reasons for this rejec-

tion of specific reforms by firms
that say they want change.

The opinions of small business on
national health care reform have
changed profoundly over die past few
years. It is no longer true that small
businesses are unified in opposition
to an all-employer mandate. Today,
42 percent of small businesses agree
that employers should be required to
contribute to the cost of health insur-
ance for their employees. Yet as re-
cently as 1989, only 24 percent of
small business owners lent their sup-
port to a statement that employers
should be required to provide basic
health insurance for their workers
(Hall and Kuder, 1990).

The common view that small
businesses are unwilling to reduce
the current tax subsidy for em-
ployer contributions to health in-
surance is inaccurate as well,
based on this survey. Today, only
a slim majority believe that main-
taining the status quo is the fair-
est approach to the taxation of
health benefits. Forty percent of
small business owners either fa-
vor a reduction in the current tax
subsidy for employer contribu-
tions or are undecided on this is-
sue. Among firms that reject the
status quo, most believe that a
limit should be placed on the
amount of employer contributions
counted as nontaxable income to
employees. They favor a tax cap
set at the level of the least costly
plan in a firm's local area.

A Heterogeneous Group

This survey also tells us that
while their opinions are chang-
ing, small businesses today are
quite heterogeneous in their atti-
tudes toward health care reform.
While there are many firms that
endorsed several specific policy

refonns touched on in the survey,
there are others that repeatedly
rejected the possible reforms de-
scribed to them, and still other
firms that said they wanted major
reform but then were unwilling
to support specific strategies. In
1993, the first group is by far the
largest, comprising S3 percent of
all small businesses. Each of the
reforms discussed in our survey
was endorsed by a majority of
these "reformers." In order of
preference, reformers .favor over-
all budget limits for health care
spending, a mandate that employ-
ers contribute toward the cost of
health insurance, a HIPC system
for small business health insur-
ance, and changes in the current
tax treatment of employer contri-
butions for health insurance.

The cost of health insurance is
an overarching concern of small
businesses. Our survey found that
cost was the most frequent rea-
son given for not offering cover-
age, and it was also pivotal in
influencing small business own-
ers' support for managed compe-
tition. If insurance purchasing
cooperatives can deliver savings
on the order of 15 percent, then
small firms overwhelmingly fa-
vor securing workers' coverage
through such purchasing arrange-
ments rather than directly provid-
ing insurance themselves. Absent
such savings, however, only a
minority of small businesses en-
dorse the managed competition
model. Our survey also suggests
that many small firms still don't
understand how managed compe-
tition would work, so policymak-
ers need to educate this group if
they want to elicit their true pref-
erences on this issue.

Small businesses may now be
a more potent force for national

JCXJRNAL OF AMERICAN HEALTH POUCY

health care reform than they were
just a few years ago. Not only do
firms say they want major restruc-
turing of the health care system,
but most are now willing to en-
dorse specific changes in poli-
cy. This is new. Although still a
collective minority, many small
businesses are even willing to
support reforms which entail ob-
vious costs to themselves or to
their employees.

Small business should not be
viewed as a roadblock to reform,
but rather as a group that needs to
be educated. Our survey shows that
when presented with both sides of
the case for reform, many businesses
are willing to sacrifice for the greater
goal of achieving positive change in
the system.^

Financial support from the
Robert Wood Johnson Foundation
and the Henry J. Kaiser Family
Foundation is gratefiilly acknowl-
edged. We thank Kevin Hough and
Jeffrey Dwyer for providing use-
ful comments on a preliminary
draft of this paper.

References

Kent C. "Will an Employer Man-
date Sink Small Business?" Medi-
cine and Health 47 (IS) April 12,
1993: 4.

Congressional Budget Office, Se-
lected Options for Expanding Health
Insurance Coverage. Washington
DCCBO, July 1991:28.

Lippert C and EK Wicks. Critical

Distinctions: How Firwa That Offer
Health Benefits Differ From Those
That Do Not. Washington DC:
Health Insurance Association of
America, 1991: 4.

Lichtenstein J and H Witte, Gov-
ernment and the Special Circum-
stances of Small Employers in Res-
cuing American Health Care: Mar-
ket Rx's. Washington DC: The NFIB
Foundation, 1991: 43.

Hall C and J Kuder. Small Business
and Health Care: Resulu of a Sur-
vey. Wishington DC: The NFIB
Foundation, 1990: 17 and 37.

Edwards J, R Blendon, R Leitman.
E Morrison, I Morrison, and H Tay-
lor. "Small Business and the Na-
tional Health Care Reform Debate."
Health Affairs II (I). 1992: 169.

Chairman Stark. Mr. Thomas.

Mr. Thomas. Thank you, Mr. Chairman. Obviously, we are all
trying to understand the President's plan on the basis of the gen-
eral information that has been put out since we do not have legisla-
tive language or a bill. I find it sometimes difficult to understand
the more intricate trigger mechanisms, since all of the experts with
whom I have consulted say we think it works this way or we think
it works that way, but we are not sure because we haven't seen the
language.

Dr. O'Keefe, I am sure you have read the 200-plus pages which
give us a general description of what the plan looks like. I notice
in your testimony that you talked about the things that you liked
and some of the things that you didn't like. Interestingly, wouldn't
you agree that some of the things that you liked in the plan, such
as having health providers organize themselves into systems that
merge accountability for service delivery and financial risk are in
virtually every plan that has been examined?

Ms. O'Keefe. As it should be. We recommend it be extended to
include the populations most in need of that kind of quality care.

Mr. Thomas. Once again, when you talk about simplifying the
administration of health services virtually every plan has that, and
when you talk about universality, everyone basically supports that.
The question is, how do you get there. Time is money and how it
is structured matters, so in terms of the areas of the Health Secu-
rity Act about which you spoke glowingly, what I see is that you
are basically supporting virtually the universal agreement about
the changes that need to be made in the system.

I would like to focus on some of the aspects of the President's
plan that aren't universally in all the options, for example, the
structure of the National Health Board. With the duties that have
been assigned to that Board, how would you describe the powers
of the National Health Board as you understand them in terms of
setting global budgets and structuring the statutorily set benefits
package.

Would you define the National Health Board, as HHS Secretary
Shalala did October 5 in front of the Energy and Commerce Com-
mittee, as a minor oversight board?

Ms. O'Keefe. That isn't how we read it in the President's plan
as it has been made available, no. It seems to assume a tremen-
dous amount of regulatory and oversight and budget-setting au-
thority. It is mind-boggling to try to picture how it would be imple-
mented.

Mr. Thomas. So that would be one of your areas of concern, the
degree of administrative control and power in the National Health
Board, a body described as a minor oversight board by the Sec-
retary of HHS.

You mention the failure to go far enough in terms of malpractice.
I am concerned about antitrust as well because those are areas
where I think we can get some obvious savings that have been
overlooked for a long time.

What is your group's position in terms of a t£ix cap on deductibil-
ity of health benefits? Is that seen as a plus or a minus?

Ms. O'Keefe. We haven't taken a formal position on that, as a
matter of fact. In general, we believe that burden should be shared

between employers and employees. We believe that the financing
and the incentives should be restructured to exert competitive pres-
sure in a competitive market for lower cost, higher quality plans.
Unfortunately, the solo practice fee-for-service system has been
largely responsible for the problems we are in now.

Mr. Thomas. I understand that. My question is if you want a
competitive market don't you have to have something that you
bump up against — if you have an open-ended benefits possibility,
where is the ability to be competitive within a defined range if you
don't have something to bump up against?

Ms. O'Keefe. We think that there should be some financial in-
centives on the consumers of health care so they will begin to ap-
preciate the costs of health care and that there are ways to get it
more efficiently.

Mr. Thomas. Mr. Archey, I am concerned about the plan to pro-
vide maximum individual incentive which your organization cer-
tainly supports along the lines of what is being called a medisave
program, in which you basically have a catastrophic medical pro-
gram, but then, pay for basic health care out of personal dollars
that are put into a medical saving account that would accumulate
tax free. You could purchase those various incidental items, espe-
cially preventive medicine that might be necessary with the hope
at the end of the year there would be some left to roll over and use
to accumulate an amount of money, and by virtue of the behavior
of the individual. Does your organization have a position on that
concept?

Mr. AitCHEY. We have not taken a formal position, but our initial
look is that we don't think that proposal is going to get you to
where you have to be regarding the kind of health care reform that
we believe is necessary.

Mr. Thomas. What about as a component part of a broader pack-
age?

Mr. AitCHEY. We would look at that, but I think that our judg-
ment is that the medical IRA. ultimately is not going to bring about
the kind of universal coverage and the stopping of cost shifting that
we would like to see, and number two, a small percentage of people
constitute 55 percent of all the health care costs in the country and
therefore IRAs for that universe may not work or go far enough.
There are a number of other problems we have with a medical IRA
that we think it will be found lacking in terms of where we would
like to see health care reform go.

Chairman Staj^k. Mr. Cardin.

Mr. Cardin. Thank you for your testimony. I particularly appre-
ciate the manner in which you are inviting your members to par-
ticipate before reaching final conclusions on a specific reform pack-
age. This is a complicated area and it really does call for more in-
formation being given out, people understanding what the reform
is about and taking a look at specific legislation which we still are
waiting for.

There is general consensus that we need to accomplish universal
coverage, that we must do a better job in the system in bringing
down the growth rate of expenses. I want to concentrate on the sec-
ond.

Both of you have stressed the fact that a competitive environ-
ment can help reduce the growth rate of health care expenditures.
Dr. O'Keefe, you point to success stories within larger companies
in bringing down the growth rates. I must tell you I have some con-
cern as to whether a competitive environment on a long-term basis
in health care will be successful in bringing down health care costs.

The President has opted for a system of improving the competi-
tive environment, but having a backup of premium caps to make
sure that we do accomplish certain savings in the overall system.
My question to you is if the competitive model works, if it is suc-
cessful in bringing down the growth rate, then what is the danger
of having the fall back of the premium caps or some form of dis-
cipline on how much we spend? Why won't that type of a model be
successful? >

Ms. 0'Kp:efk. I will begin by saying our companies are used to
working within budgets. They all have budgets and they seek to
stay within them when they provide health benefits for their em-
ployees. It gives them something to plan on and something to count
on. So in that sense we would find premium caps to be less onerous
than say direct controls on prices that are charged for specific pro-
cedures, which we have learned in the past create perverse incen-
tives in the system, including increases in the volume of services
provided.

Mr. Cardin. You don't find any problems with at least the philo-
sophical basis which the President is pursuing?

Ms. O'Keefe. Our member companies haven't taken a formal po-
sition on them.

Mr. Archey. Our response would be we see both the philosophi-
cal and practical problem with it. I think that it is our judgment
that we haven't tried market forces much in this country in this
area and that we would like to see that happen before we start to
introduce a rather significant bureaucracy that will be involved in
assessing and reinforcing a premium cap. There are a lot of things
that go with a premium cap that we don't like.

Furthermore, we are concerned even with some of the caveats
you suggested that premium caps end up basically putting in place
inefficiencies and regional variations that even Mrs. Clinton a cou-
ple of weeks noted the distinction between Boston and New Haven
and the considerable difference in health care costs without any
necessary aid to health itself So that is a concern of ours.

Mr. Cahdin. I read that in your prepared statement. My point
is that we don't know the details yet. I share your concern as to
how you allocate resources within premium caps and how you deal
with regional variances, and how you avoid penalizing States or re-
gions that have been aggressive in keeping costs down with the
same overall growth limits. I understand those practical problems.

Putting those aside, if we establish the competitive environment
that we are all striving toward, what is the danger of having the
fall back of the premium caps to make sure in fact we accomplish
the goals that we have set out in national legislation?

Mr. Archey. I think this is a tough one because it is still fairly
speculative as to how some of this will work. I think fall back be-
comes — not fall back. It becomes the expectation that that is what
will be there.

Mr. Cardin. Then in reality maybe the competitive environment
can work. If you can't work within that budget, if it is not going
to produce the type of competitive pricing that you would like to
see, if the cap becomes the floor, then in reality we should go to
budgeting rather than even trying the competitive model if it can't
work.

Mr. Archey. I think we are arguing what might happen and
what we would like to see happen first is an attempt at trying mar-
ket competition particularly through the HIPC system that is par-
ticularly the one that is laid out in the plan that Mr. Grandy, Mr.
Cooper, and others are involved with before we start emphasizing
the notion of having a premium cap.

We think let's keep that not only on the back burner, but on the
profoundly back burner, way back there. What we would like to see
is an attempt to go after some notion that real competition with le-
verage on the part of some of the buyers can work. And that it, in
turn, can have an impact in the provider community.

I would agree with your concern about whether or not it is going
to work, but I would like to see it and my institution would like
to see it tried first before we start emphasizing the issue of pre-
mium caps.

Mr. Cardin. Many of us think we have tried that for many years
in many parts of our country.

Mr. AiiCHEY. I don't think so.

Mr. Cardin. Thank you.

Chairman Stark. Well, let me try. I have just raised a question.
Dr. O'Keefe. I have a draft of a GAG report that was prepared for
me at my request some time back and the gist of it is that there
is no evidence that managed care really does save much money.

They suggest things like the fact that younger, healthier employ-
ers will go into the PPG system where the smarter, sicker, older
folks will stay in fee-for-service because they know they can get to
the teaching hospitals which they can't under PPGs. They suggest
that for instance nobody has really studied under a limited access
plan like a PPG or an IPA-type HMG. If you had studied what the
same costs to the same population and the same market might
have been had they been treated in fee-for-service, again, they sug-
gest there is very little evidence that these various systems provide
savings.

Now, there may be and my hope would be that the people who
feel that they have saved some money would come up with some
more empirical evidence. The only other thing that I would add to
confuse this is a huge insurance study which suggests that over the
10 year period of 1981 to 1991, Medicare per capita expenditures
increased by 50 percent, and premiums in the mid to large em-
ployer group increased by dlV-z percent, and nationally per capita
expenditures went up 55 percent.

Now, a lot of that might be attributed to the fact that many em-
ployers' benefits were far more generous, although in recent years
most employers have been reducing benefits as a method of cost
containment rather than increasing them. But I would hope, be-
cause sooner or later we are going to have to add up numbers, that
your group is prepared to address this issue because I am certainly
going to ask the GAG to finish working on this draft and see

whether they can in fact get us some empirical evidence because
that might be of some concern when we try to figure out what we
are going to pay for.

Mr. Archey, I have two issues that I would like to cover with you.
One, I have often quoted the NFIB survey of small businesses that
suggests that in a question asked of their membership, would they
favor providing health insurance to their employees even if they
had to pay none of the cost, and those people with great sense of
social justice, 58 percent said, no. I don't know quite how we are
going to deal with them because if we gave it to them free they in-
dicate they are not going to help their employees under any cir-
cumstances.

I think that question reflects an abiding dislike, distrust and
aversion to anything remotely governmental. I would ascribe it not
to an indication that they are indifferent to the welfare of their em-
ployees, but mostly to this kind of frontierlike mentality that might
be evidenced by these entrepreneurs.

I don't know how we are going to deal with that. But I did want
to suggest to you, after looking at the President's plan and the 3.5
percent premium on wages for small business, although I must say
that 3.5 percent has slipped away in recent days to be a sliding
scale. Nonetheless, let's take 3.5 percent of a $6 minimum wage is
21 cents an hour.

I doubt if there are many people in the food service or the hospi-
tality business who pay their basic employees much more than
that. The rest is tips or the fact that there is no union representing
them so they never get much above $6 an hour. I can't believe that
a business could be so marginal, whether it is a McDonalds, a bar,
or a motel, that they are going to go out of business if everybody
in town pays an extra 21 cents an hour. Particularly if you look at
the evidence of the last four increases in the minimum wage, the
evidence shows there was an increase of jobs saved for the times
when we had a 10-point increase in the minimum wage. For each
10 points there was about a 1 percent drop in teenage, 18 and
under employment only.

I have always said that that is a risk in the employment rate of
those 18 and under and I am willing to accept that for the kids if
we get full health insurance coverage for them. What can you sug-
gest we can do to take on this very vocal yet somewhat par-
simonious group to convince them that coming up with that 2 pen-
nies an hour might be the right thing for them to do? How can we
sell them?

Mr. Archey. I think it is important to note that the Chamber's
position on health care reform is we are genuinely trying to solve
this problem.

Chairman Stark. I know that.

Mr. Archey. We are not trying to sell memberships and I can't
say that strongly enough. Point 2 is that given the survey that I
gave you and some other stuff that is starting to come out, the no-
tion that there is a monolithic view on the part of small business
about health care reform is absolutely wrong, and I think people
who assume that it is will be greatly misled.

Point 3, how do you know what your small business members
know when they don't know what is in these proposals? You have
to in fact provide the stuff.

Point 4, if you look at the subsidies, we ran numbers that are
going to be the subject of a cover story in Nation's Business Maga-
zine this month, the November issue, by a very competent reporter,
Roger Thompson. He looked at four different examples. One exam-
ple closely comports with what you are saying. Average wage of
$12,000, which is close to pretty much the maximum subsidy, you
are talking about an increase of $1.25 a day per employee under
that proposal.

Our concern, for a company that is currently providing some
form of health insurance and is yet eligible for the subsidy in terms
of $24,000 average wage or less, less than 50 employees, this is a
good deal. The question is going to be over the longer term is this
a permanent entitlement, is this going to be something that is
going to have to be budgeted? We haven't made a judgment on
that.

Chairman Stark. In every other country in the world. First
World, Second World, Third World, health care is an entitlement.
Will health care become an entitlement for every American? That
is what the President is saying, that we must guarantee access to
coverage to every citizen in this country. It is not an entitlement;
it ought to be. I think it ought to be a constitutional right, but that
is a matter of some difference. But I would not want you to think
that anybody is trying to kid you that health care for every Amer-
ican would not in time become an entitlement. I think we would
be shamming you if we said otherwise.

My time is up. Mrs. Johnson.

Mrs. Johnson of Connecticut. Thank you, Mr. Chairman. My
questions follow on some of the questions raised by my colleagues
earlier in this hearing but to a different aspect of them. Both of you
have supported the reorganization of the delivery system and I
strongly support that. I think that is where the big cost control is
going to come.

The issue is how we achieve that? In looking at how do we
achieve that, I want to talk about two issues, one, the
"payrolltizing" of health care costs and the implications of that and
the difference between the premium cap and limiting tax deduct-
ibility as different mechanisms to create a competitive market.

As to the first one, the payrolltizing of health care costs. Dr.
O'Keefe you have attested to the incredible effect that business has
had on cost control through their own initiatives and you want to
spread that. Now, if we turn health care costs into a fixed business
cost, then none of those companies that have shown so much lead-
ership, creativity, aggressiveness, tenacity and dedication will have
any motivation to continue to do so.

In fact, the companies that have done the most to control health
care costs will pay exactly the same tax as the companies that have
done the least. I think that will sever private sector involvement
in the national challenge to control health care costs.

If you look at government's role in health care cost control, we
have had the right to encourage managed competition or managed
care or the reorganization of the delivery system in both Medicaid

and Medicare and we have not been willing to do it in the face of
the overwhelming evidence that it both reduces costs and increases
quality. So the issue of the payroll tax is not only a big issue be-
cause if the administration estimates are off, that payroll tax will
go up rapidly; so companies ought to think do we want a payroll
tax, not do we want 7.9 percent of payroll to go to health care. Be-
cause if Social Security is any model and our experience with
health care cost increases when the government rides herd on them
is any indication, that 7.9 percent, that 3.5 percent will double and
triple. So the larger issue is not the level of the tax. The larger
issue is what are the consequences in a free, competitive, market-
based economy for turning over the challenge of cost control in the
private sector to the public sector, and that is what the President's
proposal does.

I think you as business groups with your experience in what the
private sector has contributed to cost control need to comment on
what will be the motivation after the payrolltizing of health care
costs for business to continue to press on the issue of cost control.

Ms. O'Keefk. I think that is exactly the point.

May I clarify for the chairman and other members what the
Washington Business Group means by managed care? It is a term
that means different things to many people. To some it means a
clerk working for an insurance company someplace remote from the
site of service delivery denying coverage for benefits. That is not
what we mean by managed care. We mean actively working with
the total system, looking at the outcomes, developing measures to
assess quality and outcomes and basing treatment decisions on
that information. So we are not nearly as interested in, for exam-
ple, defining the specific benefits for mental health as we are in as-
suring that mental health care be delivered in a managed care set-
ting which will incorporate the fiscal and outcome responsibilities.
Under those conditions, you will get good care at the best price.

I agree that it would be naive to presume continued active in-
volvement on behalf of our large employers to shape the care their
employees receive if there is no incentive for them to do so.

Mr. AucHEY. I think you are making a number of points and I
think to some degree we share that concern. You call it
payrolltizing, the concern that there may be no incentive if they are
capped at 7.9 percent. I think that is a concern we have and one
that we have registered.

Your second point is one I would like to go back to what Mr.
Stark said earlier, the managed care. I think we are getting in-
creasing anecdotal evidence that there have been very salutary out-
comes in the last 2 years in terms of companies that have been at
managed care for some time because the companies got more so-
phisticated. There is managed care and then there is managed
care.

We have a member company that we were talking to yesterday
that in the last year had a 3-percent decline in their health care
costs as a result of the managed care program, and another we
talked to that was even with last year.

One thing we are very concerned about is that some of the expe-
rience of some of the larger companies with good well-managed,

managed care programs, that those experiences not get lost in the
whole transformation, if you will, of the health care system.

Mrs. Johnson of Connecticut. May I have a followup question or
wait until later?

Chairman Stark. We will go around and go around a second
time. Doctor McDermott.

Mr. McDkumott. Thank you, Mr. Chairman. Dr. O'Keefe, you
began by saying that delivery system is the problem and I think
that in this debate there needs to be some clarification about what
people are intending to change.

Are you intending to change the delivery system or the financing
system? I want to talk about the financing system, because it
seems to me one of the biggest problems is the area of cost shifting.
Do you think universal coverage is essential to health care cost re-
duction for big business?

Ms. 0'Kkp:fk. Yes, I think it is essential to health care cost con-
trol for everyone.

Mr. McDkhmott. So you would reject any plan that does not
guarantee universal coverage, not offer universal coverage, but
guarantee it — you would reject anyone that didn't get universal
coverage?

Ms. O'Kkkkk. I don't have that mandate from my employers.
They want us to get to universal coverage. I think they would differ
greatly on how fast and how the system should be designed to get
there.

Mr. McDp:rmott. So they are willing to accept continued cost
shifting from the government side on to the private sector?

Ms. O'Keekh;. No they are not happy with that.

Mr. McDkrmott. I didn't say they were happy. They are willing
to accept it until the year 2000, to gradually phase it in and con-
tinue us shifting Medicare costs on to the private sector? Is that
what they have said?

Ms. 0'Kp:kfk. No. They have said that by the year 2000 they
want universal coverage.

Mr. McDkrmott. So for 7 years they are willing to accept cost
shifting.

Mr. Archey.

Mr. Archey. 1 guess 6 or 7 months ago the Chamber surprised
every one when we came out with the notion of universal coverage
accompanied by the concept of shared responsibility that is, that
government, employers and individuals would all have to contrib-
ute something to it. That is still our position. We have never put
it in the negative. Would we oppose ultimately a program that
didn't have it. Our position right now stated in the positive is quite
clear. We want universal coverage and think that you can only end
cost shifting if you have universal coverage.

Mr. McDkrmott. It seems to me, then, you almost have to have
the negative. You have to be willing to oppose anything that
doesn't guarantee universal coverage. I don't know how you get
logically out of that position.

Let me ask another question. Are your members willing to forgo
the administrative savings to business that eliminating multiple
payers would yield? GAO did a study saying you could save $70 bil-
lion. Mr. Magaziner says his program saves $7 billion on adminis-

tration. You are willing to forgo $63 billion in administrative sav-
ings by keeping multiple payers.

Ms. O'Keefe. Our members believe that multiple purchasers are
necessary to achieve the end goal of cost savings. Restructuring the
delivery of care into organized systems of care and holding them
accountable will achieve much of the same savings by organizing
our currently fragmented system. The problem with the President's
plan as proposed is that it requires practically everyone to be in
the regional alliances. By the administration s accounting, their
proposal would leave only 12 percent of working Americans outside
of the huge regional alliances would function as nearly
monopsonistic purchasers.

One of the reasons that our employers have gotten good at this
is that they know their employees. They have a captive audience.
Consumer education, health promotion and wellness programs are
important parts of this and basing those at the work site has prov-
en to be very effective. Our employers are asking to continue play-
ing that role for their employees. They have the market clout cur-
rently, which they might not have in the new system, to network
providers into organized systems, and to work with those health
systems to achieve the ultimate goal — which we certainly share
with the U.S. Government — a healthy, happy work force.

Mr. McDkrmott. Mr. Archey.

Mr. Archky. We think that there is going to be administrative
saving and serious consolidation in the health insurance industry
as this thing proceeds along. Our preference is still the multiple
payer model, and we don't think that it excludes a large amount
of savings that can proceed from simplification within a multiple
payer system.

Mr. McDermott. Let me ask you another straightforward ques-
tion. I think a yes or no might work. Your opposition to the fee-
for-service system is based on an open-ended system that we have
today, no end to it. If you apply capitated budget limits to the fee-
for-service systems the whole basis of your objection disappears,
right?

Ms. O'Kekfe. No. Our basis of objection to the fee-for-service sys-
tem is that it provides uncoordinated unmanaged care and in many
cases creates more health problems for the individual consumer
who is in that system and who, by default, must be in charge of
managing his own care.

Now, individual consumers just aren't in the position to know
what is available and what is best for every medical problem. We
endorse increasing the number of primary care providers who can
serve in this management role. But a lot of the problems that peo-
ple get into in fee-for-service is getting the wrong care, the wrong
kinds of treatment and multiple treatments which in the end hurt
them more than help.

Mr. McDermott. Do you put any value on the doctor-patient re-
lationship?

Ms. 0'Kj<:efe. Absolutely.

Mr. McDermott. Yet you think everybody should be forced into
a managed care situation where they may not be able to see one
of the two or three, the practitioners that their family is accus-
tomed to seeing?

Ms. O'Keefe. No. We don't believe in forcing anybody into any-
thing. As a matter of fact, our employers have spent a lot of time
and money educating their employees about the value of this kind
care. When they do and when they continuously measure consumer
satisfaction, they discover that providers are getting very good
marks in these systems.

Mr. McDermott. Thank you, Mr. Chairman.

Chairman Stark. Mr. Levin.

Mr. Levin. Thank you. By the way, I think there is a straight-
forward answer to my colleague Jim McDermott's as usual percep-
tive question about continuing to tolerate cost shifting for a period
of years. There is a willingness to tolerate that in the President's
approach. Any transitional provision has some tradeoffs by defini-
tion. So I think the straightforward answer to you is, yes.

Mr. McDermott. If the gentleman would yield, there are some
proposals on the table now that do not guarantee universal cov-
erage. They offer the opportunity to buy but they do not guarantee
that people will be able to pay for it and get the coverage.

Mr. Levin. That isn't transition, though. That is — I would say
that is potentially so. There is no assurance. It is different where
you insure, though you phase it in. Let me ask a couple of ques-
tions and the spirit of them, I think, is clear, the spirit with which
we all ask questions. Indeed, I think we have been struck by the
constructive approaches of both your organizations so let me ask a
few probing questions.

Mr. Archey, you attack any kind of caps and you say we are wary
of counting our chickens before they hatch. How do you answer the
argument that when you have no fallback provisions of any kind
you are diminishing the chances that the chickens will ever hatch?
Also, you talk early on about your concern about overestimates of
cost savings. However, if you remove the caps altogether, won't the
likely savings be even more ephemeral or less easy to calculate?

It seems to me there is a real tension in your position. Don't
count the chickens before they hatch, but don't do anything that al-
lows us to be at all certain that we will see any hatching at all.

Mr. Archey. I think at this point in the health care reform de-
bate, and it is not going to be restricted to this, there is going to
be a lot of tension in our positions on this and several other issues.
I think that part of our position on the caps is partly philosophical
in terms of whether or not we ought to be entering into the mar-
ketplace when this probably is the first full-fiedged attempt to try
to bring some market competition into this system.

Second, there are other ways to do some of these things, one of
which perhaps might be, on some of the subsidies that are inherent
in the President's proposal, is to budget those subsidies, probably
index them for inflation and bring a little rhyme and reason on
that side. We don't think that as the last resort or the first resort
that premium caps ought to be at the top of the list.

Mr. Levin. I don't think it is fair to characterize them that way,
because I don't think that is intended by the President. Let me just
quickly so we

Mr. Archey. In the draft of the President's proposal, the way it
is at least enunciated, I would submit that the premium cap issue
is fairly foremost in that proposal.

Mr. Leven. At least you've qualified it and said fairly foremost.
I don't read it that way.

Let me mention a second point of tension that relates to choice.
You very much come from a school and from a background where
consumer choice is important. Yet in your testimony in a number
of places you seem to be moving in a direction which would dimin-
ish choice. For example, on page 5 you said a major reason you
want to peg the employer contribution lower is to encourage con-
sumers to choose less expensive plans. Then, as people reach Medi-
care eligibility, you want them to remain in the existing care net-
works rather than tranferring to an artificially preserved fee-for-
service environment.

Mr. AitCHi<:Y. Let me

Mr. Levin. How much choice are you willing

Mr. AucHEY. A lot. We are willing to provide a lot of choice. We
are saying that the consumer ought to have the opportunity to
weigh a number of different choices out in the marketplace and
through the HIPCs we think that that possibility could be en-
hanced rather than diminished.

The second point I think that we make in terms of what you are
saying about consumers not maybe being more cost-effective, we
are not at all in favor of limiting an individual or an employee's
right to get a more expensive or more comprehensive plan. We are
saying pay for it and in fact that becomes taxable benefit.

Mr. Levin. How much are you willing to load the scale for one
type of care against another? Would it be loaded against fee-for-
service? How much — give me some rough approximation — how
much of an inducement, incentive, stimulus would you use? Peg-
ging it at the lower third or half of plans is a pretty heavy weight
on that scale, isn't it? This is an important question, I think. How
much would you load the scale in favor of stimulating people to go
away from fee-for-service programs?

Mr. Archey. I can't answer that question. It is just not one — in
the way that you have addressed it, I don't know. We are not op-
posed to fee-for-service plans if in fact they are competitive. We are
not suggesting that fee-for-service plans be eliminated and there is
nothing in our positions that would indicate that.

Mr. Levin. Thank you.

Chairman Stark. I didn't mean to allow Mr. Levin to go over
time, but he hid my gavel.

Mr. Levin. Not on purpose.

Chairman Stark. Mr. Grandy.

Mr. Grandy. Thank you, Mr. Chairman. Let me ask this at the
outset. The chairman was referring to a GAO study about whether
or not managed care really means savings and I think one of the
debates in this committee, one of the ongoing problems with deter-
mining what assumptions are correct in health care policy, will
kind of vacillate between supposedly scholarly evidence prepared
by GAO — although I think that is probably giving them too much
credit — and anecdotal evidence about various managed care or
management competition systems around the United States.

I might point out for the record that anecdotal evidence was sup-
plied to this committee last week by the First Lady when she was
defending the administration package and used Minnesota, Califor-

nia and Rochester, New York, which I would have to beheve are
three of the managed competition and managed care success stories
in the United States. I think that is worth putting on the table as
to whether or not anecdotal or scholarly evidence is going to prevail
here. I think we won't know until we try some of these systems on
a larger scale.

Having said that, Mr. Archey, yesterday when the Managed
Competition Act was introduced with 29 Democrats and 22 Repub-
licans, the Chamber said in a letter:

Particularly given its bipartisan support this proposal must be given serious
weight as the debate proceeds in Congress and the public strives to reach consensus.

I take that to be an endorsement of the process and not the prod-
uct. Is that the Chamber's position?

Mr. Archky. Yes.

Mr. Grandy. You said you have likes and dislikes about this par-
ticular piece of legislation and I think your position on the adminis-
tration's plan, your likes and dislikes, have been fairly well stated,
and I think it is clear what your feeling is about a single-payer sys-
tem.

Could you quickly give us what you consider to be the strong
likes and dislikes in the Managed Competition Act that was intro-
duced yesterday?

Mr. Archey. I will do it very quickly. We like the way that you
construct both the way the HIPCs work and their size.

Mr. GitANDY. Do you agree with Dr. O'Keefe that 100 is about
the right area

Mr. Archky. That is our position. We like the fact that in the
Managed Competition Act of 1993 there is much less emphasis on
Federal bureaucracy or State bureaucracy. We like the fact that
there are no targets that are imposed by a National Health Board
on the various regional alliances. One of our real concerns with the
Clinton plan is that on the issue of malpractice reform we think
it fails to go far enough. Some would argue whether or not it really
is malpractice reform or just a bit of window dressing. So in terms
of what you are proposing in the Managed Competition Act, we like
that.

We like the fact that the act basically emphasizes the commonal-
ity of programs among the States rather than deviation, which is
another of the real concerns we have about the Clinton program.

We are very concerned about the Managed Competition Act of
1993 because, to go back to Mr. McDermott's point, it does not offer
universal coverage. It does not require universal coverage. We
think that is essential in terms of the cost shifting argument.

Mr. Grandy. Would you then advocate some kind of individual
mandate to require insurance?

Mr. Archky. Our position is the position of shared responsibility
in which, if you will, everyone has got to do something in terms of
making a contribution. And the other point I think that we are con-
cerned about is we do not like the idea that if an employer goes
the average plan, or that is not the term your bill uses, but within
a given HIPC, providing a plan above the average to its employees
means the employer loses deductibility. That is of great concern to
us. That is fairly quick off the top of my head.

Mr. Grandy. Dr. O'Keefe, what was the basis of your organiza-
tion choosing 100 employees as a workable threshold below which
a marketplace discipline would be imposed on small employers?
Why not, for example, 5,000 that the Clinton administration pro-
poses or 1,000 which was the old conservative Democratic forum's
proposal of last year?

Ms. O'Keefe. The basis is philosophical and demographic and
practical. At 100 or below, there is an argument for needing to pool
to garner sufficient purchasing power to do the kind of serious ne-
gotiations that would result in forming these good partnerships.
Philosophically, my group has long watched the developments of
the Jackson Hole group where these ideas began to germinate.
Jackson Hole has argued for a threshold of 100. Demographically,
there isn't much rationale for going about that. Insurance compa-
nies stop experience rating after a fairly low threshold because be-
yond that it doesn't net them anything. Beyond that point they
begin to community rate groups.

Mr. Grandy. Are you saying that the problem of adverse selec-
tion and risk adjustment is less above a hundred than it is
below

Ms. O'Keefe. That is right.

Mr. Grandy. Does the Chamber concur with that, Mr. Archey?

Mr. Archey. Yes.

Mr. Grandy. Thank you, Mr. Chairman.

Chairman Stark. Mr. McCrery.

Mr. McCrery. Thank you, Mr. Chairman.

Mr. Archey, it is great to be for a lot of general things like uni-
versal coverage, but I don't see in your testimony any specifics as
to how you would achieve universal coverage. You gave us a statis-
tic, regarding 55 percent of the costs of the health care system.
What was that statistic you gave us?

Mr. Archey. It is that a very small percentage of the population
constitutes 55 percent of the health care costs, 4 percent.

Mr. McCrery. Is it true that the great majority of that 4 percent
are elderly?

Mr. Archey. Not necessarily I don't think.

Ms. O'Keefe. That 4 percent represents individuals with chronic
diseases, catastrophic illnesses, and the terminal ill. A lot of money
in the current health care system is spent on people in their last
year of life.

Mr. McCrery. What would you do with Medicare, for example?
Would you leave it alone, would you include it in some universal
system?

Mr. Archey. Our position is that Medicare should remain out-
side of the regional alliances at this point in time. Medicaid should
be brought in.

Mr. McCrery. So cost shifting from the public to the private is
OK, but cost shifting within the private sphere is not OK?

Mr. Archey. No. Our view is you bring Medicare in over time,
but you can't do that in one fell swoop. No. 2 is you bring a lot of
the changes in terms of managed care and other aspects into the
Medicare system in a much more aggressive way. We have as much
concern as you do. The reason the Chamber has taken the position
on universal coverage, which was a tough position to take, and on

the issue of shared responsibility, was primarily because of cost
shifting.

This is an issue that is of enormous concern to our membership,
small, medium and large.

Mr. McCrery. Universal coverage, again, is a great goal. I am
going to try to get people to be honest and straightforward about
how to achieve that. Mr. McDermott and Mr. Stark and others who
favor a single payer are honest. They want the taxpayers to pay
for a single-payer system to provide coverage for everybody.

The Clinton plan is basically straightforward, although their
numbers are a little fuzzy. At least they say somehow we are going
to finance universal coverage with taxes primarily, and witn an
employer mandate. You are for an employer mandate, but you don't
tell us how you would fill in the gaps. I assume that you would
favor some tax to achieve universal coverage if there is going to be
this shared responsibility, is that right?

Mr. AiiCHEY. We have not made the judgment on whether it will
be a tax or the specific tax it would be. We have judged that if you
do not have universal coverage the cost ultimately to society be-
cause of the cost shifting and because of the costs that would be
incurred will probably be greater than whatever it will take to
make universal coverage a reality.

Mr. McCrery. If you have universal coverage through whatever
means how do you plan to prevent overutilization, which we have
now to a certain extent because of the third party payment system
that dominates our system?

Mr. Archey. I think there are a number of things that are not
exclusive to any of the major proposals now. One thing we are look-
ing to do is the question of protocols for doctors, what are the prac-
tices that ought to be followed. I think that there are a number of
disciplines that have been introduced already through some of the
HMO experiences that I think will be transferable in terms of not
overutilizing the system and not having providers overuse the sys-
tem.

On the other hand, the providers also have to have some room
to maneuver regarding the possibility of malpractice because of the
fact they didn't provide certain tests, et cetera. Any plan that we
want to see happen is going to have to include this. So there are
a number of things — I would defer to Anne Marie, who comes di-
rectly from that group in terms of additional ideas.

Ms. O'Keefe. I would like to emphasize that we consider the
problems of utilization and the issue of choice to be different
whether you are talking about an uncoordinated fee-for-service sys-
tem where consumers must manage their own care, or an orga-
nized system of care where services are managed and coordinated
by medical professionals. Within an organized system of care or an
accountable health plan, which unites financial responsibility with
the responsibility for the outcome of care, you don't have the incen-
tives for overutilization of inappropriate services.

Within an accountable health system, choice also becomes mean-
ingful. It is an important issue for Americans, but the practical fact
of the matter is if an individual is out there on his own choosing
what providers to go to, he has maximum choice, but it is not nec-
essarily well-informed. An individual consumer isn't prepared at a

moment of medical emergency or any other time to check and ver-
ify the credentials of any individual provider. A system is.

A system would be responsible not only for the credentials, but
for the quality of work provided by every practitioner within the
system, which is again why enterprise medical malpractice liability
makes sense to us.

Mr. McCrery. Mr. Chairman, I will return in a minute to ask
some more questions perhaps of later panels. But basically I dis-
agree with your contention that individuals are not responsible
enough to take care of themselves.

Ms. O'Keefe. I didn't mean to imply they aren't responsible.
They are ultimately responsible. But they don't have access to the
kind of information necessary for them to make informed choices
among providers and services.

Mr. McCrery. Thank you.

Chairman Stark. We will run around a second time here. Mr.
Thomas.

Mr. Thomas. Thank you, Mr. Chairman.

To take off on my friend from Louisiana's comments, I think that
is one of the reasons that you were unwilling to bite on the $63
billion in savings of the single-payer system. I think you would say
that $63 billion in a $1 trillion market that would truly utilize
proven market controls on cost is not peanuts, but it is not the kind
of money you want to go for compared to the savings you could get
if you had informed consumers. That is the key, with a computer-
ized structure on outcomes, procedures

Ms. O'Keefe. Integrated medical records.

Mr. Thomas. Any structure that would deliver those changes in
a way doctors would accept it, and therefore implement it in the
system with informed consumers making rational, individual
choices on health care options, we are willing to bet that it will
save far more than the $63 billion in the administrative costs that
a monolithic, bureaucratic, dictatorial system, which he is advocat-
ing the single-system payer would save. Is that a fair statement as
to why you would be opposed to the tantalizing $63 billion savings
in a single-payer system.

Ms. O'Keefe. We also want to be sure that we structure a sys-
tem that produces continuing quality improvement and continued
savings. Those one-time, high-ticket savings are very alluring, but
where will we be in 5 years?

Mr. Thomas. The key to that is I think an informed consumer
having the freedom to make those choices in a structured market-
place that is going to be competitive.

Mr. Archey, do you have comments on that?

Mr. AitCHEY. I think that we very much emphasize the issue of
choice in our proposal within the concepts of regional alliances or
HIPCs. I think we are on the same wavelength with you on that.

Mr. Thomas. Regarding HIPCs, I am trying to recall what you
said earlier. Do you believe they need to be mandated or can they
be optional, the HIPCs or the alliances?

Mr. Archey. We would like the purchasing cooperatives run as
a cooperative the way I thinkMr. Grandy's bill does.

Mr. Thomas. One of the primary reasons would be to enjoy the
economies of scale.

Mr. Archey. With particular emphasis to giving some of that le-
verage to small firms who currently don't have it.

Mr. Thomas. Here is my problem with that concept, and we get
into these debates about the shape of the alliance; everyone dis-
agrees with the enormous bureaucratic powers the Clinton plan
would give to alliances and the National Health Board in trying to
make it work.

If you have a mandated benefit plan and if you are espousing
universal coverage on insurance and changes in the insurance in-
dustry, and you have an understanding of what that plan is going
to cost, why do you need to construct these massive cooperatives
and even mandate them with this fundamental change in the
structure. As the First Lady said, our benefit plan is kind of a com-
posite of the Fortune 500 model.

Why can't you take a composite of that cost and indicate to insur-
ance companies that this is the targeted price. It is printed on the
business pages as to what that amount is for the plan and it is up
to insurance companies to try to figure out a way to deliver that
plan through an organizational savings of either voluntary coopera-
tives or administration changes so that you don't have to have this
mandated cooperative structure moving from group coverage to in-
dividual coverage, which I think is a massive shift. It is open-
ended.

Mr. Archey. The problem is there is already existent, and I don't
think it will go away for a long time, tremendous regional variation
in terms of health care costs, in terms of the actual cost of delivery,
the cost of getting the health care and the health care insurance.
That is No. 1. No. 2, I guess we are saying we like very much the
idea of bringing these decisions down as close to the local level and
to people there on the ground as you can possibly get it.

We think that the health insurance purchasing cooperative is a
very good way to do it. It allows for local experimentation. We obvi-
ously want to see certain national requirements, but we would like
to see some local option.

Mr. Thomas. But your problem in terms of pricing is a problem
that the HIPC will have anyway. That is a common problem. I am
bringing it down to the local firm who looks at the price and turns
to his insurance company and says this is what is currently being
charged, paid for by the larger companies. I want you to deliver
that to me. With the clear incentive that the insurance company
is going to have to do it, we are making every small employer their
own HIPC. I think that brings it far closer to home.

Mr. Archey. You are suggesting a one-stop shop approach.

Mr. Thomas. No, I am suggesting that if you are using the For-
tune 500 as a kind of criteria on what the benefit plan is, why not
use the price of that benefit plan as the cost driving mechanism in
the marketplace instead of restructuring the whole world along the
mandatory cooperative, which moves everybody from what largely
now is group insurance to individual.

Mr. Archey. We would like to look at that proposal and pursue
it further.

Chairman Stark. Mrs. Johnson.

Mrs. Johnson of Connecticut. For the record, there has been a
lot of discussion of the $63 billion in administrative savings that

a single-payer system would generate. The same GAO report that
estimates that savings also estimates that a single-paver system
would increase costs $70 billion by allowing a new demand for
services. So I think we have to be very careful in looking at that
$63 billion savings, because behind it would have to come heavy
micromanaging to avoid the additional $70 billion in increased
costs, and it is in the same report. So I invite you to examine it.

Second, I think it ought to be clear that the administration plan,
and this is matter of testimony, preserves the cost shifting cur-
rently in the system between public and private reimbursement
rates and does not seek to increase public reimbursement rates or
even bring them up to the level of the premium set by the health
alliances. It also allows two additional cost shifts.

I would like you to do some research on this and ^et back to us.
By including retiree health benefits some companies costs will de-
cline, other companies' cost will go up because the system costs will
go up. That is a shift of costs that I think we need to look at.

Second, by allowing companies that have a benefit plan richer
than the benefit plan of the health alliance to continue to get full
deductibility for that benefit pl^n, there will be a cost shift from
the companies with richer plans to companies with the premium
capped plan. I think at least I would like some help in analyzing
that shift and what it is going to amount to and how much is the
relief given to certain companies with very large plans and very big
obligations going to cost the rest of the business community and
particularly the small business sector.

The issue I want to raise following on my discussion of
payrolltizing insurance costs is the issue of the merits of backstop-
ping cost control with a premium cap versus deductibility.

Mr. Archey, you mentioned you don't like the idea in the Cooper
bill, that companies would not get the incremental deductibility be-
tween their rich plan and the lowest cost plan. As one who is an
advocate of the three or five lowest cost plans, I don't want to have
this too rigid a discussion, but it looks to me that capping deduct-
ibility to some average toward the low end of the market allows a
very strong competitive market whose goal it is to produce quality
care for that lower range cost.

And if we don't, in a sense, penalize companies that have first-
dollar coverage and Cadillac plans by at least not allowing them to
deduct the marginal difference between that lower amount and
their top dollar amount, then we will not drive the reorganization
of the market into lower cost systems of care as aggressively as we
must to control cost.

In contrast, the administration wants to backstop the system
with premiums negotiated by the alliances, but the premiums nego-
tiated by the alliances will be backstopped by the global budget. If
the estimates for cost control don't come- through, that global budg-
et will trigger in right away and the premiums will not be a nego-
tiated agreement about the cost of these services, but a negotiation
that involves how much the premium has to be in order to meet
the global budget targets.

That is the way Medicare works now. This is not a concept or
a system that we don't have experience with. Medicare rates now
are set as to what we think the health care costs involved would

make those rates and then they are arbitrarily adjusted downward
to take into account the volume factor and meet the global targets.
That is reality.

We, right now, in the whole Medicaid program set rates for hun-
dreds and hundreds of procedures and office visits and then we say
this is the rate it should be if you are going to talk about what the
cost of care is, but this is the rate it is going to be in order to meet
a global target. That is going to be fundamentally the system in the
premium caps with a global budget.

If you look at that as a very arbitrary and inflexible mechanism
for cost control versus tax deductibility, which assures a competi-
tive market, because if your premiums aren't right you aren't going
to get a competitive market. You will get fewer and fewer compa-
nies in the market, and you are going to get more and more ways
around the barn to pretend to provide care for a premium that
doesn't cover costs. So I want to hear your thoughts on these two
different mechanisms of backstopping cost controlling, in writing —
I want to lay out — this is a challenge that we all face.

I think tax deductibility is far more flexible and offers us some
real effort to press reorganization more rapidly in the right direc-
tion.

Mr. Archey. We will put it in writing. I don't think we disagree
about where we want to end up. We do not think that putting that
burden on the employer by removing the tax deductibility is nec-
essarily the way to go. We also think when you get above a particu-
lar plan that the consumer, the individual himself perhaps ought
to be looking at the contribution for that. Again, I don't think we
disagree with you about the concern that you raise.

Chairman Stark. Other members.

Mr. Grandy. I would just like to point out that in that question
Mrs. Johnson has entered the Guinness Book of World Records for
the longest question, breaking her own record set just last week.

I wanted to just make sure that I understood when you answered
the question about what you call the deductibility problem with the
Managed Competition Act. The Chamber is not philosophically op-
posed to a limitation on deductibility. It is with the specific pro-
posal in the Managed Competition Act which limits it to the lowest
cost accountable health plan in the region; is that correct?

Mr. Archey. We understand what your proposal does and we un-
derstand when you will kick in the exclusion of the tax deductibil-
ity, but we still don't like it.

Mr. Grandy. Are you opposing limiting deductibility on its face
or opposing our proposal in that area?

Mr. Archey. We are opposed to limiting employer deductibility
in any way on this issue.

Mr. Grandy. Do you favor the proposal in the Clinton plan to ex-
tend the 10-year grace period to large employers — Fortune 500
companies — to 10 years so that they can continue their Cadillac
plans while the rest of the system is basically trying to contain
costs?

Mr. Archey. We can look at that. The other half of our position
on this is perhaps not the most politically attractive one, that if an
employee opts to buy a Cadillac plan, beyond the average or na-

tional plan, that becomes a taxable benefit to the employee. So we
are not saving that there shouldn't be some incentive brought in.

Our difllierence is we are saying the incentive ought to be in
terms of being more cost-effective, cost conscious, et cetera, on the
part of the employee.

Mr. Grandy. Wait a minute. You are saying that if the employee
were to buy a more generous plan then anything over the
deductibile limit should be treated as taxable income, it should be
a taxable benefit? You just don't like the burden falling dispropor-
tionately on the employer.

In other words, if the employer provides a more generous plan,
the Managed Competition Act says anything above that is going to
be taxed. It will, however, be deductible by the employee and it
won't be considered as income. You want to even that out?

Mr. AitCHEY. Correct.

Mr. Grandy. Both of you have said Medicare must be included
in health care reform and that is one area where all plans are cau-
tious to the point of being coy about dealing with Medicare. The
President's plan expands benefits for Medicare while taking $125
billion out of the provider reimbursement.

In our bill we try and create an incentive for a Medicare buy out
by telling beneficiaries if they go into some kind of accountable
health plan they will be able to acquire a prescription drug benefit.
What are your thoughts on how to incorporate the 33 to 36 million
people into a unified health reform plan?

Ms. O'Keefe. We heartily endorse your approach. One of the
ways well-managed organized systems of care attract Medicare
beneficiaries right now is by offering a prescription drug benefit
which is not covered under Medicare. We hoped these incentives
would be included in reform proposals to induce a further migra-
tion into these accountable health plans where Medicare bene-
ficiaries have been pleased with their care. We would have given
them an inducement by structuring better benefits inside organized
systems, not be adding them to the current Medicare system.

Mr. Archey. I would subscribe to what Anne Marie just said.

Mr. Grandy. You would be favorably disposed toward some kind
of incentive to lure people from Medicare into a system and keep
them there even if it meant discarding, generally, a fee-for-service
plan and entering a more managed care kind of model?

Mr. Archey. Yes, sir.

Mr. Grandy. Thank you both.

Mr. McDermott. Mr. Chairman, I am sorry I was out of the
room when Mrs. Johnson raised the question of the CBO study.
The CBO study says that in fact a single payer system would in-
crease health care spending by 5 percent, without single-payer
health care costs would increase by 11 percent so it is half the rate
of growth of our current system. What she did not say is that the
single-payer system savings over the next 5 years is $314 billion
more than any other plan on the table, that managed competition
according to CBO, pure managed competition that was introduced
yesterday was a loser to the tune of over $200 billion. So there is
a $500 billion spread between what a single-payer system does
with first dollar coverage and what you get with managed competi-
tion in the pure form introduced yesterday.

I want to ask a question about unpure form, because Mr. Archey,
you suggested that we have never had market forces in operation.
It seems to me what you are asking for now is government-enforced
market forces. There has been nothing in medicine to date that
prevented people from dealing with the cost escalation; whether it
was doctors or insurance companies or companies, they have all
been trying to use the market forces.

What you are asking for is the government to come in and en-
force it in some way. I would like to know what your bottom line
is on what you want the government to enforce, because it is un-
usual for business to be coming asking the government to enforce
some regulations to make things work better. I would like to hear
what your bottom line is, how much government you want in this?

Mr. Archky. We would like as little as possible to make the sys-
tem work and particularly to benefit our smaller companies who
currently don't have the benefits that perhaps some of our larger
companies have. That is why we like the idea of requiring the es-
tablishment of health insurance purchasing cooperatives; because
we think that is going to give the smaller companies banding to-
gether a great deal more leverage and give them some of the buy-
ing power that in fact they haven't had and the other companies
had.

Second, we are talking also about some stuff that you may call
a mandate or a requirement. We think the government can facili-
tate, as opposed to the stronger word, mandate. We endorse the
whole notion of providing information on outcomes, the ability of a
consumer to make a more informed decision, but not under duress
while they are on the way to the emergency room, to have accurate
information as to what costs and outcomes are in a particular re-
gion or State along the lines of the Pennsylvania Cost Containment
Council and others. There are a lot of things that we think can go
on. There is one area where I think the government will have to
be involved because of the question of the subsidy for small busi-
ness.

We think that if you are going to stop cost shifting you have to
get everybody into it. Small business is going to have a much more
difficult time than the big guys. There has to be a subsidy. If you
want to call that something that is going to have to be enforced by
the government, we are in favor of it.

Ms. 0'K^:kfk. If I could say for the record, one of our frustrations
with CBO's approach to costing out these various proposals is the
fact that they have refused to score the savings that can result
from well managed care. It is just not on the radar screen for them.
It doesn't get into their projections. They literally base the cost of
comprehensive mental health coverage, for example, on the old fee-
for-service system, which is not what we propose and is not how
providers are delivering those services for our employees.

Chairman Stark. Unfortunately, we are stuck with CBO figures.
I agree with you, but that is ours not to reason why.

Mr. McCrery.

Mr. McCrkry. Mr. Archey, a quick question on your treatment
of health benefits over and above some average. You said that you
would consider that taxable income to the employee. Is that for all

employees of all employers, including large employers that would
not be in the cooperatives?

Mr. Archey. That would be for all employees.

Mr. McCrery. Thank you.

Chairman Stark. It is the Chair's intention to recess until noon
and proceed again. There is a vote on. But I want to ask Dr.
O'Keefe, you represent a large number of the Fortune 500 compa-
nies that would presumably be in this over 5,000 category. Could
you make a guess as to what percentage of those companies with
over 5,000 employees would opt to have their own health alliance?

Ms. O'Kt^EFE. As the President's program is currently struc-
tured — this isn't a firm answer, it is not based on a survey — but
we have been asking around and as things stand now, very few
companies would take them up on forming their own corporate alli-
ances.

Chairman Stai^k. That is the Chair's opinion too, that most
would find it better to go into the local alliance rather than do it
on their own. Thank you.

One final question. You have dealt with the issue of cost shifting
which you both suggest that you are worried about, as is the Chair.
I am going to suggest just to see where you would come down on
this that as a practical matter, as we begin to go through this there
are going to be three choices, and I will preface this by saying that
government spending covers about half of all medical spending in
the country. If it picks up the uninsured it would be at about half.
So the three alternatives that seem apparent at this point would
be on the government side.

In each one of the three alternatives it appears that we could
continue along in the Medicare style structure, negotiating for
rates with doctors and hospitals and in effect setting the providers'
or maximum prices. The question, then, is of the three choices it
would seem to me, one, to have basically no controls at least de-
fined on the private side. Probably that is where managed competi-
tion is; having a Medicare-like fee, although it would be higher
than Medicare set for the private side for physicians and pharma-
ceuticals and hospitals; or the third alternative is the administra-
tion's, some kind of premium cap or gross expenditure controls for
the private side but not for the public side. If those were your only
three choices, and again there may be more, which one of those
three would each of you prefer?

Ms. 0'Ki<:efe. But given that choice, I guess I would pick A.

Chairman Stark. Which is to leave the private side with no cost
controls or the present system which has been competition, no
mandated cost controls for the private side?

Ms. O'Kh-EFK. On the purchasers you mean?

Chairman Stark. Yes. Or on the providers either. There is no en-
forced cost controls by — Mr. Archey.

Mr. Archky. I would go A if I could amend A. Can we put in
HIPCs as part of A?

Chairman Stark. Yes. I don't see they have cost control in them,
but if you think they do

Mr. AitCHEY. There are other possibilities. I would like to get
back to you with D, E and F.

Chairman Stark. As I mentioned, either there would be a gov-
ernmental cost on the top or the bottom; you either set prices and
that ends up in a budget or amount and that ends up in prices or
you depend upon a mechanism which has no risks and rewards or
no controls. It may have risks and rewards anticipated, but noth-
ing — you can say tnere is a fall back. That may be longer than peo-
ple want to wait.

My own guess is we will finish that if we didn't put some cost
control on tne private side and then are asked to cut on Medicare
and Medicaid, as we are, you would be back quickly asking us to
control costs which experience shows will be shifted to you. My
guess is you might be back asking us to change the structure.

Mr. Thomas. Mr. Chairman, the three choices are pretty obvious
in the way it is structured. It appears to me that your first choice
is like the unintended acceleration problem in automobiles where
you say no controls, it is on the private side, but somehow those
cars moved without the operator doing anything. I think implicit
in this first one is that all those changes governing the individual's
choices in that structure will be changed in terms of providing
more information and that there are governors or controls, and it
is the same problem as with unintended acceleration — it wasn't the
structure or the vehicle, it was the person in charge and that is the
problem in the system now. It is the uninformed consumer.

Chairman Stark. Even with the tax cap there is nothing we sus-
pect that that might change consumer behavior, but there is no law
against it. In other words, they could still spend more if they chose,
as opposed to an absolute law that says that is all you can spend.

We thank this panel. We will return in about 10 minutes.

[Recess.]

Chairman Stark. We would like to continue, and will convene
our next panel.

I would like to welcome Larry English, who is president of the
CIGNA Healthcare, which represents an alliance for managed com-
petition. He is the man with the oxygen mask. Mary Nell
Lehnhard, a senior vice president of the Blue Cross and Blue
Shield Association; Karen Ignagni, the president and chief execu-
tive officer of the Group Health Association of America, and to rec-
ognize my distinguished colleague from Indiana, Hon. Jill Long,
who has long been concerned not only about health care in general,
but the issue of women's health care and women's rights, and I
would like to recognize Jill at this point to introduce the fourth
member of our panel. Welcome, Jill.

Ms. Long. Thank you, Mr. Chairman and thanks for giving me
the privilege of introducing the fourth member of this panel. Mr.
Ian Rolland is the chairman and CEO of Lincoln National Life In-
surance and Lincoln National Corp. He has a long history of work-
ing in health care and health insurance. He is the past president
of the American Council of Life Insurance, the past president of the
Society of Actuaries, past he is chairman of the board of directors
of the International Insurance Society.

He is currently on the board of directors for Life and Health In-
surance Medical Research Funds. He is the past chairman of the
Health Insurance Association of America and in addition to all of
the work that he has done professionally, I think it should be noted

that he is a person who cares about the dients that are served in
the health insurance industry. In both his personal life and in his
professional capacity heading Lincoln he has made a strong com-
mitment to the community that I represent and also a strong com-
mitment to the people of this country. So he comes to you testifying
this morning not just as somebody who has expertise in health in-
surance, but somebody who really cares about people, and that is
a very important component of this health care debate.

Chairman Stark. The only problem is it took him a lot longer
than it took me to understand that one and two were the only an-
swers to that theorem. I have known that for years because I
wasn't going to try anything else. He has spent all his career trying
to figure it out. That is an inside joke among us experts in mathe-
matics.

We will ask the witnesses to proceed in the order that you were
recognized and we will lead off with Mr. English.

STATEMENT OF LAWRENCE P. ENGLISH, PRESIDENT, CIGNA
HEALTHCARE, BLOOMFIELD, CONN., ON BEHALF OF THE
ALLIANCE FOR MANAGED COMPETITION

Mr. English. Thank you, Mr. Chairman. I am Lawrence P. Eng-
lish, president of CIGNA Healthcare. Today in addition to rep-
resenting CIGNA, I represent the Alliance for Managed Competi-
tion, which is an informal coalition of the Aetna, CIGNA, Met Life,
Prudential and the Travelers. Together these companies provide
health care and insurance for more than 60 million Americans.

I would like to emphasize at the outset the fact that the alliance
companies strongly support the broad goals of health care reform
as described by President Clinton. We are encouraged by the Presi-
dent's call for a bipartisan approach. We think that will be nec-
essary to produce practical and beneficial changes in our system.
Moreover, there are many specifics in the President's plan which
we believe should be supported enthusiastically.

Among them are universal coverage, portability, the elimination
of preexisting condition limitations, the elimination of cream skim-
ming and cherry picking underwriting practices, the use of commu-
nity rating, a standard benefit plan and malpractice reform. These
concepts are not new to us. We have been advocating these and
other reforms for some time.

We do have some concerns regarding the tools the President's
plan would use to achieve its goals. Specifically, we are very con-
cerned about the administration's plan's almost exclusive reliance
on central planning and regulatory control rather than on the re-
form of the marketplace, reform in which consumers and providers
could respond to positive incentives to make wiser choices about
the efficient use of health care.

We are also very concerned about the proposed use of premium
caps as a cost containment measure. Many knowledgeable individ-
uals from almost every field of persuasion have spoken as to the
ineffectiveness of price controls. They will stifie competition, they
will drive away the private capital that is needed to continue to re-
structure the health care delivery system, a restructuring I would
note that is already underway. They will also lead to rationing.

We are concerned about what the administration's plan has done
to the concept of purchasing cooperatives or health alliances. These
were originally conceived to be cooperatives in which individuals
and small employers could freely select from a wide array of com-
peting health plans. In the current proposal these cooperatives
have emerged as giant regulatory bodies that would cover more
than 99 percent of all businesses and more than 80 percent of all
employees. The staff of these alliances could limit the number of
health plans to be offered and they would dictate the prices those
health plans could charge.

We strongly urge your consideration of the Managed Competition
Act of 1993 introduced yesterday with the bipartisan cosponsorship
of 27 Democrats and 17 Republicans, including Congressmen An-
drews, Grandy and Congresswoman Johnson of this committee. We
believe the Managed Competition Act holds great promise without
the imposition of price controls, global budgets or regulatory health
alliances. The market has begun the process of transforming the
delivery of health care from the cottage industry it has been with
lots of inefficiencies into a truly efficient system focus on quality
and controlling costs.

Large and medium sized employers are already driving that
transformation. They know full well that health care costs have im-
paired their competitiveness and they are getting their costs under
control and maintaining quality by moving their employees into
managed care plans at record rates. Increased competition for their
business has placed an enormous demand on companies like ours
to enhance the quality of what we do for both employers and em-
ployees.

Government might best proceed to encourage a more market-
based system first by not scaring off the capital with the specter
of price controls, by not creating unnecessary bureaucracy that will
surely add to additional administrative cost, and by not limiting
competition by having these huge, bureaucratically-laden alliances
pick two or three favored plans.

Government should level the playingfield so that health plans
can compete on quality and efficiency, not on risk selection, and
should place incentives in place so that consumers and employers
will fulfill the public interest through the pursuit of their own self-
interest.

Third, the government should focus on the problem of those hav-
ing the most problem with our current system, that is small em-
ployers and individuals. Everyone would benefit from the improved
security that would result from comprehensive insurance reform,
the creation of purchasing cooperatives designed to assist small
employers and individuals gain access to the marketplace at com-
petitive rates and that would make the promise of security a re-
ality.

These reforms could transfer today's inefficient market for small
employers and individuals into one that would be intensely com-
petitive. We are convinced that these reforms could be achieved,
that they would have broad support, that as a result the President
and the Congress would achieve their goal for major reforms in the
health care system, capital would continue to be available for the
restructuring of the market, employers would be able to continue

their vitally effective progress in managing the health care cost and
quality of health care of their employees, and most important of all
the American people would enjoy greatly expanded access to qual-
ity care and the best medical system in the world delivered through
a free, efficient and competitive market. Thank you very much.
[The prepared statement follows:]

TESTIMONY OF LAWRENCE P. ENGUSH
CIQNA HEALTHCARE

Mr. Chairman, my name is Uwrence P. English, and I am president of CIGNA Healthcare. Today,
I represent both CIGIMA and the 'Alliance for Managed Competition, which is an informal
coalition of five companies that provide health care and insurance to more than 60 million
Americans.

My company, CIGNA HealthCare, is one of the nation's largest providers of managed medical and
dental care services and group life and health insurance. It operates a nationwide network of
77 health and dental maintenance organizations in the United States and 109 preferred provider
or^mizations that serve nearly 5 million members across the country. CIGNA HealthCare also
is one of the largest providers of managed mental health and substance abuse programs and a
leading provider of employee disability management and medical cost control services. Currendy,
we provide insurance cover;^ to more than 14 million people.

At the outset of my testimony, I would like to emphasize the ba that the Alliance companies
strongly support the brood goals of health reform described by President Clinton. We welcome
the bipartisan cooperation that undoubtedly will be necessary to produce practical, beneficial
changes.

With that position dearly itoted, I would first like to ccxnment on how the Alliance companies
view the administration's plan. Second, I would like to put In per spe cti ve the type of
fundamental questions the business community Is asking about health care reform. Then I would
like to ofiier some observations on the substantial changes that already are taking place
throughout the industry and on practical eflbrts to initiate Immediate additional reform.

First, some general thoughts about the administration's proposal. We are encouraged by the
President's call for a bipartisan approach. Health care represents almost 19 percent of the U.S.
economy. Reforming it will be an ezaaonlinarlly complex task that will require the intellect,
diligence and good will of both political parties and of the numerous private sector 'for-profit*
and 'non-profit" Institutions that engage in health care delivery. No one has all of the answers,
and it would be a tragedy to see the debate sunounding this important Issue dominated by

There are many specifics In die President's pfaui we believe shoukl be supported enthusiastically.
For esunpie, such prlndpies as:

. the impUdt coiphaals on netwtirk-based delivery systems;

the idea of purdiaalng cooperatives or, if you prefer, health a

efficient;

malpractice reform; and
. the objective, consistent measurement of quality and ounxxnes.

These concepa are not new to us. We have been advocating d»em for some time, and they form
the essence of the administiation's plan.

So, as 1 said, d>ere is much that is encouraging. But, at the same time, we have some concerns,
particularly residing several of die toob this plan woukl use to achieve its gr«b. Our concern
is that certain approaches wUl adversely affect our ability lo achieve fong tr rm improvemeno
while producing unintended conseqi<ences. This may be a once-ln-«-lifctime opportunity for
reform. Therefore, it's important to do the very best we can.

Spedflcally, we are concerned about the adminlMnilon's almost eaduslTe reliance on cential
planning and regulatory coniml. rather than oonfldence in a reformed market place in whk:h
consumers aitd pt o fl d ers can respond to positive Incentives to make wiser and more efficient

•AETNA, QGNA. MET LIFE, THE PRUDENTIAU and THE TRAVELERS

If this proposal were to become law, we believe the new regulatory bureaucracies at both the
state and federal level that would be created are excessive. New regulators or oversight
responsibility would be given to numerous existing federal agencies, while a new agency - a
National Health Beard, with very broad powers - also would be created. In addition, each of
the 50 states would have at least one health alliance with powers to regulate all aspects of health
care, which we believe would likely increase administrative costs, (without improving care for
consumers.)

We also are concerned about the proposed use of premium caps as a cost containment measure.
The proposal, as we know it, would impose rigid, centrally planned budgets that would result
in sweeping price controb for a major sector of the U.S. economy. Our opinion is that such
controls would have highly undesirable consequences on the delivery system of health services
without delivering their goals.

From my own petsonal experience, I know that price controb don't work. Many knowledgeable
individuals from virtually every field and persuasion have spoken to their inefifectiveness of price
controls. I do not believe the government can stop clever people from evading them. Who will
rule on the exceptions? Who will decide how to price a new treatment, a new technology, a new
drug?

Further, it is my opinion that price controls will stifle competition. And they will drive away the
private capital that is needed to continue the restructuring of the health care delivery system
already underway.

Most important perhaps, it is impossible to concei v e that national buckets can be met through
the savings the administration envisions as a result of proposed Medicare and Medicaid cuts. Are
there ine£Bciencies in the system? Yes, of course, there are, and they need to be eliminated.
However, wringing them out will not provide suCBdent funds to pay for all of the uninsured,
expanded coverage for most, and add new benefits, such as pharmaceutical and long-term care
for the elderly. The numbers simply aren't realistic, and they don't take into account other
costly implications of the proposed changes. For example, the economic costs associated with
increased coverage for retirees are immense and very difficult to forecast, as are the cost
implications of the graying of America, which will generate increased use of the health care

Also difficult to quantify is the deterioration in quality, the delays and the outright unavailability
of techfK>log)r and medical procedures that are readily available today. In short, dte aii>itrary
rationing tfatt is sure to result from this kind of plan.

We also are »«ry concerned wid> what the plan has done to d>e concept of purchasing
cooperatives. Health Insurance Purchasing Cooperatives, HIPCs, or Alliances as they have become
to be known, were originally conceived to be cooperatives in which iiKUviduals and small
employers could freely select from a wide array of competing health plans at reasonable prices.

In the current proposal, these cooperatives have eme r ged as giant regulatory bodies - covering
more than 99 p er cent of all businesses and more than 80 percent of employees - whose staff
could limit the number of health plans to be oflered and would dictate the prices they can
charge. I am convinced that die size of these cooperatives will diminish competition, not
increase it, and It will likely eliminate the Incentive private empkiyers currently have to continue
to improve the health of their employees. They also are likely first steps in what eventually
would become a single-payer, government-run system similar to that in Canada.

So, in summary, our view of die administration's plan is mixed. We unabashedly agree with Its
goals, but we have concerns about the some of the means it wouM employ to achieve diem
Resolution of these issues Is not insurmountable. There are practical solutions which will not
do harm to the 80-90« of our healdi care system dtat serves die vast majority of Americans well.
We are committed to working with you to find those solutions.

Beyond our own pefspective on reform, IVe spoken wldi many of QCNA HealdiCare's dlena
and potential clients. IVe heard many of the questions diey have voiced about die
administration's proposal. It is dear to me that, over the next several mondis, each company's
•nanagonent will be deciding which proposal works best for its respective business. The

conclusions undoubtedly will vary, depending on a firms size, employee mix and number of
retirees. But the questions all are certain to ask are the following:

o Do we want the state or federal governments or both to establish the level of health care tax
~ disguised as mandated premiums - our company and our employees will pay In the future?

o Do we want to have a direct role in determining the health benefits available to our
employees and the cost of those benefits?

o Do we want rules and benefits to vary from state to state?

o Do we want to transfer the management of fifteen percent of the economy to the government?

o And finally, what will the real cost of change be to our company going forward?

Answers to these questions are essential in judging whether the proposed changes will benefit
or restrict economic growth in our country.

Now, let me ofifer some comments on the reform efforts already occurring within the health care
industry.

Large and medium-sized employers already are driving reform. They know full well that
escalating health care costs have impaired their competitiveness. They wield a very big economic
stick, and they are using it to get their medical costs under control and maintain the quality of
care. They are moving their employees into managed care plans at a record rate. As a result,
more than 41 million Americans are now enrolled in HMOs and many more are in Preferred
Provider Plans, Point of Service Plans as well as other plans involving some aspects of managed
care.

The record shows that this spread of managed care techniques is rapidly reducing the rate of
growth in health care expenditures. In other words, responding to consumer demand. It is
changing the very infrastructure of the industry: doctors are joining networks or organizing
themselves, hospitals are merging, new health plans are forming and new capital is being invested
- all of which has increased competition exponentially.

Further, increased competition for this business places enormous pressure on us to enhance the
quality of what we do for employen and their employees. Quality programs are proliferating.
Every insurer I know of that wants to be a pan of the health care system is focusing on system
improvements that will strengthen service and lower administrative costs. They're moving ahead
with 'new world' technologies that use electronic data interchange and electronic funds transfer
that will soon lead to a poperiesa health care system.

Even more eacdting is the fact that competition is leading to innovations in medical care
-innovations that Improve treatment while lowering costs. For example, CIGNA HealthCare has
developed more efifective medical management pnxedures for pediatric asthma patients,
improved existing biopsy procedures that aid in the diagnosis of breast cancer and initiated
programs to identify and treat potential high-risk pregnancies.

All of these innovations improve the quality of treatment, from the patient's point of view, and
at the same time, save millions of dollars. And, we are not alone in our innovations. Other
managed care providers can dte similar irtnovatiofts.

Moreover, not all of the improvement is coming from managed care providers. Employers,
recogiUzing that lower health care cost is a competitive advantage, have initiated wellness
programs aimed at keeping their employees healthy. Nutritional counseling, smoking cessation,
fitness centers and well-baby programs are becoming common in the modem workplace.

The market has begun the pnxcss to transform the delivery of health care from the cottage
industry it is now, with lots of inefficiencies, into a truly efficient system focused or. quality and
controlling cosa.

Without being too presumptuous, I would tike to suggest how the government might best
proceed to encourage and move to a more market based system. From my perspective,
government must level the playing field so that health plans compete on quality and efficiency
not risk selection. We should put in place incentives so that cotuumer and employers will fulfill
the public interest through the pursuit of their self interests. Government should not scare ofif
capital - as it surely will - with the specter of price controls. Should not create unnecessary
bureaucracy that will add to administrative costs. Should not limit competition by having huge

bureaucratically laden alliances pick two or three favored plans. Encourage competition. Let it
flourish.

I, also, very much suppon and urge the government to play a part in enhancing competition and
reforming those portions of the market that are not working well. I believe the federal
government should create a Standard Benefits Plan, which would enhance competition and
simplify administration. I think it should put in place an apolitical National Health Board to
define the standard benefits plan, accredit accountable health plans (AHPs) and collect outcomes

Perhaps most important of all, I suggest that the government should focus on those having the
most trouble with our current system. The problem, simply stated, is that small employers find
all too fivquently that group health insurance is difficult to get or too expensive to provide for
their employees. Under current practices their premium rating can be distorted by a single claim,
pre-existing, condition limitations can make changing carriers difficult or impossible, and
administrative and marketing costs can consume a disproportionate amount of their premium
relative to large employers. Individuals face the same problem and, to make matters worse, they
do not get the same tax preference employers get.

Everyone would benefit from the improved security that will result from comprehensive Insurance
reform. Surveys clearly show that, while the overwhelming majority is happy with its health care,
people are frightened by the thought that they could lose their job or that their employer will
cancel their plan, and that they will be unable to find affordable health Insurance.

To correct these inefficiencies, 1 think the President and Congress would do well to focus on
insurance reforms that eliminate pre-existing condition limitations, individual risk selection, and
assure portability. I suggest they also should consider the creation of, or encour:^ the states
to create, purchasing cooperatives designed to assist small employers and individuals gain access
to the market at competitive rates.

These reforms would transform tcxlay's inefficient market into one that would be Intensely
competitive. All - not just a few - health plans would have to compete in the purchasing
cooperative. The benefits would be standard. Employees and individuals would have free
choice, and there would be no risk selection - competition would be based only on price and
quality - and it would be fierce.

Competition, baaed on consumer choice, would decide who would offer service and who would
not. These cooperatives would Increase access, bring down cost and improve quality. The
number of ur\inMueds would decrease. Americans would have the security of knowing that, if
they lose their jobs or change jobs, they could find affordable health insurance - a virtual
guarantee of portability. And, ultimately, the remaining uninsured could be given government
vouchers or tax credits which would enable them to participate in the purchasing cooperative
on an equal footing with other Individuals. Eventually, Medicaid and even Medicare beneficiaries
also could be brought into the cooperative, and universal coverage could be achieved without
massive government intrusion.

I am convinced that these reforms could be achieved. They would have broad support, including
ours. As a result, the President and Congress would achieve their goal for major reforms of the
health system, capital would continue to be available for the restructuring of the market and
employers would be able to continue the vital and effective progress they have already begun to
make in managing health care costs and maintaining quality. But most important, the American
people would enjoy greatly expanded access to quality care and the best medical system in the
world, delivered through free, efficient and competitive markets.

Mr. Chairman, President Clinton and Mrs. Clinton have taken a brave step forward. Their goals
are noble, and we heartily endorse and support them. Let us hope that in the spirit of building
a bipartisan program, we can reconcile the many issues that undoubtedly will be raised In the
coming discussions and bring about reform of the health care market place which will enhance
competition, rationalize incen t i v es, and promote wise decision making by providers and
consumers alike. The American health care system will continue to have the best trained doctors,
the most modem facilities and the best technology, equally available to all Americans.

Thank you very much.

Chairman Stark. Mary Nell, you are next.

STATEMENT OF MARY NELL LEHNHARD, SENIOR VICE
PRESIDENT, BLUE CROSS AND BLUE SHIELD ASSOCIATION

Ms. Lehnhard. Mr. Chairman and members of the committee, I
am Mary Nell Lehnhard, here representing the 69 independent
Blue Cross and Blue Shield plans. Our plans applaud the President
for moving health care reform to the top of his agenda and our
plans support much of the proposal he has laid out. First and fore-
most, the Blue Cross and Blue Shield Association supports enact-
ment of strict Federal standards for reforming the insurance indus-
try. We agree with the President that insurance reform is one of
the key elements — not the only element, but one of the key ele-
ments of comprehensive reform.

It is important for two reasons. First, insurance reform is needed
to make sure consumers are treated fairly and that health insur-
ance is responsive to the needs of consumers. Everyone needs to
feel secure that every single health plan will, one, accept them no
matter their health status or employment status; two, not drop
people or groups because someone gets sick; three, be reasonable
about preexisting waiting periods and eliminate them if we have
universal coverage; four, use standards to establish rates that don't
penalize people who are older or sicker; and, five, simplify paper-
work if not eliminate it for both patients and providers.

The second reason we need insurance reform is that it is the un-
derpinning for effective cost containment. We believe that the most
effective way to control total health care costs is for the private sec-
tor to put its creative competitive energy into managing both the
price of care and the use of services. You heard earlier from the
employers about the success that primarily large employers are
having in holding down increases by using networks of physicians
who charge reasonable rates, but more importantly are committed
to reducing unnecessary services.

We need to make sure that these kinds of delivery systems, these
physicians and hospital networks, are available not just to large
employers but to the entire market. Some insurance companies are
doing this. However in the small group and individual markets
most insurers have an overwhelming incentive to compete in that
market based on selection of the best risks, to hold the premium
down by including only the healthiest people and rejecting those
who are sick rather than to truly manage costs.

Federal standards that require every insurer or health plan to
accept everyone, rate them fairly and not drop them when they get
sick would assure that competition even in the individual and
small group market is based on cost management rather than risk
selection. This isn't all we need to do to control costs. Consumers
also need to be able to compare health plans for value and quality
and that is very difficult to do now.

We agree with the President that insurers should be required to
standardize benefits so consumers truly can compare health plans,
provide data on quality again so consumers can shop, and provide
information to consumers on enrollee satisfaction with the plan.
Armed with this <^ype of information, and again assurance that

every health plan will take you, all consumers can choose coverage
for the first time based on value.

We, like the President, support a strategy for universal coverage
based on employer and individual responsibility and we go into
that more in our testimony.

We do have some concerns about the administration's proposal,
primarily with respect to the large mandatory health alliances.

The primary reason for creating these alliances is to support the
administration of individual choice. Every other function envi-
sioned for the health alliance can be achieved through aggressive
insurance reform and regulation of the insurance market as well
as incentives to change the delivery system. For example, we sup-
port the dollar cap on the employer deduction for health expenses.
While individual choice may be desirable long term, and we are not
sure about the short term. Moving even the entire small group seg-
ment of the market group market into a mandatory alliance with
individual choices would, we believe, result in complete confusion
and disruption of the market.

In some States, for example, more than 70 percent of the popu-
lation is in groups of under 100 enrollees. In all States, insurers
would face, we believe, violent changes in enrollment to the point
that they wouldn't know how to set a premium in advance of the
open enrollment period. We have tremendous experience with this
in the Federal employees health benefit program where, even in a
very long-term stable program you have extreme difficulty knowing
where to set your premium because you don't know who is going
to be in your health plan.

We advocate instead voluntary purchasing cooperatives. Small
employers could join these and, put their employees into a situation
where they have individual choice. We believe we need to move
gradually, gain experience and avoid a "fruit basket upset" situa-
tion, which is totally disruptive for the public. The bottom line is
we shouldn't and don't need to make the success of reform depend-
ent on establishing large, new bureaucracies that don't exist any-
where today. We can move now on insurance reform which will
promote competition by keeping costs down and assuring quality,
and allow us to move forward in our efforts to provide universal
coverage using a genuine managed competition model.

Chairman Stark. Thank you.

[The prepared statement follows:]

TESTIMONY OF MARY NELL LEHNHARD
BLUE CROSS AND BLUE SHIELD ASSOCIATION

Mr. Chairman, and members of the committee, I am Mary Nell Lehnhard,
Senior Vice President of the Blue Cross and Blue Shield Association.
The Association is the coordinating organization for the 69 independent
Blue Cross and Blue Shield Plans throughout the nation. Collectively,
the Plans provide health benefits protection for about 68 million
people. I appreciate the opportunity to testify on the important issues
of reforming the private health insurance market.

Insurance Reform; The Foundation of Health Rfeform

There is a consensus across this nation and in Congress that insurance
reform is one of the central elements in comprehensive health care
reform. Fundamental changes in the basic rules within which insurers
operate is a key component of the major health care reform proposals.
As Congress begins the debate on health care reform legislation, I
cannot overemphasize the significant impact of insurance reform on
carrier practices. The types of insurance reforms that I will discuss
would move the market away from competition based on risk selection.
Risk selection is the reason we do not have true price competition in
health care. It is easier for many insurers and HMOs to hold down costs
by screening out high risks than by managing overall health care costs.
A clear illustration of this point is that 4 percent of any population
will generate about 50 percent of all the claims costs. If insurers
have the choice, they will invest in techniques to avoid those high
risks rather than invest in techniques to manage cost.

Insurance reform eliminates risk selection as a tool for maintaining
competitive prices. Instead, insurers would have to compete on the
basis of their ability to manage costs.

We believe that strict federal standards for the market conduct of
insurers is the first and most important step toward reshaping the
health care market -- and assuring fairness to consumers. Federal
standards defining a health plan should:

1. Require insurers to accept everyone regardless of their health
status or employment;

2. Strictly limit the length and use of waiting periods for pre-
existing conditions and prohibit them entirely for people who have
been continuously covered;

3. Prohibit insurers from dropping people or groups when someone gets
sick, and require insurers to offer continued coverage when a
person loses his or her job;

4. Require insurers to set premiums fairly and not penalize people who
are sick or older; and,

5. Require insurers to comply with requirements for administrative
simplification, including increased reliance on electronic data
interchange and conformity to standards.

These same strict standards must apply to more than insurers and Health
Maintenance Organizations. Self-funded plans must play by the same
rules and be held to the same standards as Accountable Health Plans.

Insurance Reform Bv Itself Is Not Enough

While new rules for insurers are an essential part of health care
reform, by themselves they will not be sufficient to contain costs and
achieve universal coverage.

Cost controls: New standards for the way insurers do business can be an
underpinning of a successful cost containment strategy. In addition,
insurance reform will allow individuals, employers and employees to
weigh both price and quality when purchasing coverage by requiring:

1. Standardization of health benefit designs. While we do not believe
a single standardized benefit design will be workable, a limited
number of standardized benefit designs will allow consumers to
easily compare products.

2. Health plans to report standardized data on quality of care and
subscriber satisfaction.

3. A limit on the tax deductibility of employer contributions for
health benefits to an amount consistent with cost-efficient health
plans.

These features will encourage the expansion of organized delivery
systems that have a proven ability to change inefficient and ineffective
utilization patterns and cause providers to become more efficient
providers of health care.

Universal coverage: Making more affordable insurance available would
reduce the number of people without insurance benefits, but it would not
lead to universal coverage. A requirement for employers to offer and
contribute to the cost of health benefits, and for individuals to accept
and pay for the balance of the premium, would be necessary to achieve
universal coverage.

Such a requirement, however, would impose a severe burden on many small
employers. To make it possible for small employers to comply with the
mandate, subsidies would be needed. These subsidies should be targeted
to companies that rely heavily on low-wage workers.

Need to Increase Competition and Maintain Stability
Two elements of the Clinton Administration's recent proposal cause us
concern. These include the proposal's reliance on large regulatory
Health Alliances to perform an extraordinarily broad and complex range
of functions, including compliance with the new standards of market
conduct, and the proposal's reliance on global budgets and premium caps
to control costs. We do not believe either large alliances or premium
caps are necessary to achieve the goals of universal coverage and cost
containment. Instead, we are concerned that both may lessen the
effectiveness of the new rules governing the insurance market.

Large regulatory alliances: The Health Alliances would be called on to
perform an extraordinary range of functions. Large regulatory Health
Alliances would result in an immediate conversion c: the vast majority
of insurance from group coverage to individual coverage. While
individual choice may be a long term goal for reform, dismantling the

system of group coverage poses grave risks for market stability. For
example, fewer than 6,000 private business establishments have 1,000 or
more employees. However, these establishments have more than 12 million
employees -- more than 13 percent of total private sector employment.
Abruptly requiring these millions of employees to individually select
their health plan would have two destabilizing effects.

First, the administrative complexity of processing enrollment -- on an
individual basis -- for 12 million individuals and families would add
substantially to administrative costs. In addition, it would be almost
impossible to avoid major confusion and disruption.

Second, as millions of individuals changed health plans -- both
initially and annually -- the mix of risks -- and resulting costs --
insured by each health plan would change substantially and
unpredictably. Such changes in enrollment are particularly likely
because of several other elements of health reform, including
standardization of benefits and community rating. Both provisions would
change premiums significantly for many employers and individuals.
Insurers cannot predict how consumers would react to such increases,
making it very difficult for insurers to set premiums. They would
literally have to set premiums in advance of knowing the characteristics
of their enrollment.

The Administration has emphasized that a risk adjuster would address
these problems of risk selection. We support risk adjustment, but do
not believe that risk-adjustment methods would be sufficiently advanced
to solve the problem. Our studies have consistently found that all
health plans are not equally. likely to cover higher-risk subscribers.
In part, these differences reflect the extent to which some insurers can
avoid enrolling people that are likely to need medical care. And in
part, these differences reflect the preference of younger and healthier
individuals and families for health care products such as Health
Maintenance Organizations. Whatever the cause, it is not uncommon to
find differences in risk of 20 percent or more across insurers and HMOs.

These differences in risk become important if community rating is
adopted without a proven, reliable method of adjusting for differences
in risk. Coverage from a plan that has suffered adverse selection could
cost consumers considerably more -- for the same set of benefits -- than
coverage from a health plan that has avoided high-risk subscribers. It
has been established that many individuals and families will change
health plans in response to differences in premiums of as little as $20
per month. Those who are most likely to change carriers are younger and
healthier subscribers.

Risk adjustment is still in its infancy. The impact of age and sex on
costs has long been recognized. For example, a person age 55 will, on
average, incur costs that are four times higher than a person age 25.
However, these simple demographic adjustments account for only a small
part of the difference in premiums that can be attributed to risk
selection. For example, in a comparison of products that are virtually
identical in terms of benefits and provider networks, demographic
factors accounted for only a small fraction of the difference in costs.

When additional information is considered, including measures of self-
reported health status and use of health services in prior years, we can
account for more of the difference in costs. But, even our best methods
account for less than half of the difference. States are currently
experimenting with a number of solutions to the problem of risk
adjustment, but none have yet proven themselves.

Unless an effective method of risk adjustment is developed, plans
serving higher-risk groups and communities could be forced from the
market. In practical terms, this means that we should proceed
cautiously with reforms that may make it impossible for health plans
with higher-risk subscribers to compete on a level playing field.

We recommend that options for individual choice be expanded gradually.
Voluntary purchasing cooperatives could be formed to allow small
employers to offer their employees choice of health plans on an
individual basis.

With respect to rating reform, community rating with demographic
adjustments should be enacted for small employers, with between 2 and 49
employees. Such a requirement would eliminate those rating practices
that have made health coverage unaffordable for many small employers and
have had the most destabilizing effect on the small group markets.
Insurance premiums would no longer vary widely for a small employer with
older employees or an employee with a serious health problem. And rate
increases from year-to-year would become more predictable for small
groups. It would also be possible to develop, test, and refine more
effective methods of risk adjustment while maintaining stability in the
larger group market.

Premium Caps and Global Budgets: Global or alliance budgets
administered through premium caps promise less spending, but we believe
they would prove to be ineffective and would preclude a smooth
transition into a more competitive and efficient system.

1. Premium caps would be driven by federal budget priorities and
politics that have little or nothing to do with health care. One
decision in Washington would determine the amount of money
available to provide needed health care in each Health Alliance
area.

2. By relying on a process that is not a reliable predictor of how
fast communities should be expected to eliminate inefficiencies,
premium caps would force the rapid downsizing of provider networks,
reduced availability of sophisticated diagnostic and treatment
technology, increased waiting times for consumers, and a decline in
customer service. Plans that cannot comply with the limits would
either be forced from the market -- or forced into insolvency. The
end result would be fewer choices for consumers.

3. Premium caps would limit the innovation needed to truly change
behavior, by limiting the ability of health plans to invest in ways
of better managing practice patterns and achieving better outcomes
for their members.

4. In the absence of proven methods or risk adjustment, health plans
could exceed their premium cap because they have enrolled higher-
risk subscribers not because they do not effectively manage costs.

Although some argue that premium caps are needed to enforce limits on
spending, we believe that the new rules for health insurers will lead to
vigorous price competition that will be more effective in controlling
costs over the long run and support a more orderly transition into a
reformed health care system.

Conclusion

I would like to reiterate our strong belief that insurance reform is the
key to containing costs and assuring access to coverage. Reforms are
needed to make coverage available for employers that have an employee
who has a serious medical condition, reduce the wide variation in
premiums charged to groups based on their health status, limit increases
in premiums for small employers that result when an employee develops a
serious medical problem, and assure coverage for individuals with
existing medical conditions.

Federal policies to give employers and individuals a greater incentive
to select cost-efficient health plans that delivery high quality care,
and to enable them to compare the options that are available in a
reformed market will complement insurance market reform. The benefits
of reform can be realized without resorting to either premium caps or
large Health Alliances that could actually work against the objectives
of reform.

STATEMENT OF KAREN IGNAGNI, PRESmENT AND CHIEF
EXECUTIVE OFFICER, GROUP HEALTH ASSOCIATION OF
AMERICA, INC.

Ms. Ignagni. I am Karen Ignagni, I represent the Group Health
Association of America. We have 347 plans that we represent con-
sisting of 32 million members. We are delighted to participate in
this hearing today and have submitted our text to you for review
of our prepared remarks. If you will pardon my informality, as I
was listening this morning, I would very much like to throw out
my prepared oral statement and address some of the points that
you and many of your colleagues made with respect to where we
are going in the delivery system.

A number of you talked about the existing CBO report and the
draft GAO report with respect to the performance of managed care
systems. I would like to raise several points with you this morning
about that report. The first is that I think speaking plainly we in
the HMO industry have not done enough to tell our story about
what has been going on, what major changes have been going on
in the delivery system and how effective they are, not simply on
the cost side, which is terribly important, it goes without saying in
the debate, but I think more importantly for our long-term objec-
tive of society in terms of getting a handle on this problem, the
quality side.

I am new to the HMO industry and in that regard have been
looking at a great deal of data over the last several months and I
have been very much struck by the track record that is out there.
You raised the issue with respect to whether or not our plans are
successful in treating younger versus older population and implied,
many of you, that perhaps you were confused about what evidence
exists with respect to the performance of managed care systems in
populations that are not young and healthy.

Let me direct some comments directly to the Medicare risk popu-
lation.

Chairman Stark. Before you bury me, let me say that my sus-
picion, is that where there is a choice it is in the fee-for-service pro-
gram for those services that are the IPA model, which are not
HMOs, not staff model. The workers who are bright select those
plans. I wouldn't argue with you for a minute that HMOs, particu-
larly the staff model, are the most efficient way to deliver medical
care if all you are concerned with is cost. Absolutely none, and they
provide pretty good quality.

It is where there is an option and people opt out, and the fee-
for-service costs go up because the older, sicker people pick them
so they can go to Mayos which they can't do in Kaiser. So the com-
pany's cost in the aggregate may not go down at all.

Ms. Ignagni. Let me direct myself directly to your hypothesis,
Mr. Chairman. If you look at the Medicare risk contract program
where a number of plans both in the group practice model HMO,
as well as in individual practice model HMOs are participating, I
would tell you that the data are very significant in terms of the
track record as compared to what the HMOs are providing, what
they have seen in terms of cost per case, length of stay.

There have been increases on the right side of the equation, on
increased usage of home health prevention, and decreased utiliza-

tion in terms of inpatient care, nursing home care. Exactly what
I think most of you would like to have in the system, to put more
emphasis on the front end. We have not, I think, done enough to
really communicate that experience and we are going to set out to
do that.

I wanted to raise that issue with you and also tell you that we
will be actively working with CBO, 0MB and others to try to pro-
vide experience and assistance on the issues that we know best and
where we can tell a story that I think has not yet been told.

Point two is, our experience is in the area of the delivery system.
I would like to direct my attention with respect to the President's
proposal, although you have examined a number of elements with
respect to that proposal this morning, to the delivery system and
make several points.

The first is from the standpoint of plans trying to navigate and
operate within a confusing maze of regulations. We believe it is ab-
solutely imperative that the Federal Grovernment set out to define
the rules of the game, that we level the playingfield and there is
no inherent advantage to consumers in the end living in one State
or another. Let me tell you what I mean by that.

We have a series of patchwork regulatory imperatives out there
now that plans have to comply with. It is confusing to consumers
and plans and I submit it is not the experience on which we want
to build a national reform. So at the Group Health Association of
America we are in the process of developing a proposal that we
hope to be helpful and share with you as a wav of beginning the
debate with respect to the standards and what the delivery system
should look like.

The second point I would make is in the area of the purchasing
alliances and the reach of the purchasing alliances relative to what
plans are doing now. Our plans have engaged in some path break-
ing work with respect to report cards, with respect to developing
data that all of my colleagues have referred to. I think we want to
encourage plans to continue down that road as opposed to discour-
aging and preempting that.

I think as you navigate your way through the maze of hyperbole
and confusion with respect to the choices before you, we would ask
that you look very carefully at what has been done out there, what
is in the process of being done and how it benefits the consumers
and how we can continue that rather than stepping back and tak-
ing another turn.

Speaking on behalf of our association we hope to be as helpful
as we can to provide you the information necessary to understand
what is going on out there and hopefully the directions that you
can and should proceed. Thank you.

Chairman Stakk. Thank you.

[The prepared statement follows:!

TESTIMONY OF KAREN IGNAGNI
GROUP HEALTH ASSOCIATION OF AMERICA, INC.

Mr. Chairman and members of the Subcommittee, I am Karen
Ignagni, President and CEO of Group Health Association of
America, Inc. (GHAA) . GHAA is the oldest and largest
national trade association of health maintenance
organizations (HMOs) . Our 347 member companies serve 32
million enrollees, approximately 75% of the total national
HMO enrollment.

We are pleased to have this opportunity to share our
views on the President's health care reform plan. We applaud
President Clinton for his leadership in moving health care
reform to center stage and placing universal coverage at the
forefront of the American agenda. We share the President's
goals of assuring access for all Americans to comprehensive
benefits, giving our citizens piece of mind by prohibiting
waiting periods for coverage and doing away with pre-existing
condition exclusions; establishing the principle that all
plans should be accountable for quality of care and the
quality of service that they provide; and protecting the
right of all consxamers to choose the plan that best meets the
needs of their families.

The' proposal's emphasis on managed care is both exciting

and challenging for the HMO industry. It is our conviction
that expansion of well-structured, fiscally sound managed
care options can play a major role in achieving
comprehensive, high quality health care at an affordable cost
for all Americans. As Congressional consideration of health
care reform proceeds, we realize that the question "does
managed care generate enough savings to deserve a central
place in the debate" will be prominent. We believe that the
answer is yes, but we also believe that this question
deserves another look. It may be diversionary, and indeed
counterproductive, to let the health care policy debate
become unduly fixated on questions of money alone. Certainly
we should pay at least as much attention to quality - and to
the role that managed care can play in bringing high-quality
and affordable health care to the millions of Americans who
are uninsured, under insured, or underserved.

HMOs have a dramatic success story, providing high-
quality health care at predictable cost to consumers who, in
survey after survey, give HMOs positive reviews. Yet the HMO
model, once derided as "socialized medicine," is still
misunderstood, perhaps in part because it is so often
described simply as "managed care" — an accurate term but
easily misconstrued. Many f ee-f or-service plans try to
manage care. HMOs offer coordinated care.

Every HMO member chooses a primary care physician who
acts, in effect, just as family doctors used to do — learning
the needs of patients and their family members, keeping track
of defined patient populations, promoting preventive care and
sound health maintenance practices, and making referrals to
specialists when necessary.

Coordination assures patients of high-quality care while
also making it possible for HMOs to manage costs far more
efficiently and effectively than is possible under
uncoordinated f ee-f or-service care. Coordinated care also
gives HMO health care professionals a wealth of information
with which to monitor quality. Ongoing internal quality
reviews are, in fact, a hallmark of the HMO health care
model.

The need for national health care reform has been well
documented. Now Americans are debating how to provide
guaranteed health security for all of us at a cost that all
of us — employers and employees alike — can afford. HMOs
offer a proven model for reform.

• UNIVERSAL COVERAGE at broadly affordable cost becomes
possible only when insurance risks are spread across a large
community. Currently, most health coverage is priced using
"experience rating," where high premiums are set for high
cost groups and low premiums are set for low cost groups.
Experience rating financially discriminates against
populations that experience high costs: the very young, the
very old, the chronically ill, and those with pre-existing
conditions, such as diabetes. Nearly all HMOs employ
cojjununity-rating, basing their premiums on the average cost
of serving entire subscriber communities. Rather than
controlling costs by excluding the sick, HMOs work at keeping
their communities healthy. Rather than manage the risk, HMOs
manage the care.

• COMPREHENSIVE BENEFITS are meaningful only if access
to those benefits is assured. HMOs offer comprehensive
benefits (in most cases at least equivalent to those being
proposed under the principal reform proposals) , and assure
access to those benefits by (1) keeping out-of-pocket costs
low — generally eliminating deductibles and requiring only
minimal -copaynents for some services; (2) maintaining
relationships with the right number and mix of providers to
meet their members' needs; (3) coordinating care; and (4)
maintaining effective quality improvement programs.

• QUALITY OF CARE can be systematically enhanced only
under a system that provides care to an enrolled population.
The HMO model, centered as it is on the role of the primary
care physician, has built-in safeguards to assure that
appropriate care is provided and unnecessary care is avoided.
This is the basic principle that allows HMOs to offer cost-
effective quality care. HMOs develop practice guidelines
based on direct experience and research. They recognize,
too, that uncontrollable cost increases can be avoided not
just by delivering care more efficiently but by constantly
improving the quality of that care. With access to detailed
information on services provided, HMOs can analyze the care
and can implement appropriate guidelines to improve outcomes.
HMOs constantly reinforce this approach, and can provide a
blueprint for quality-of-care standards across the country.

• ADMINISTRATIVE COSTS can be brought under control when
administrators and care providers are working together. By
integrating financing and delivery of health of care, HMOs
eliminate needless and costly paperwork. Far from rewarding
inefficiency, HMOs stake thc'r future on being able to
control it.

• COMPETITION under a reformed health care system can
play a key role in bringing the nation's total health care
bill under control. If competition is based on price alone,
however, the savings will be illusory. HMOs, with their
emphasis on coordinated care and comprehensive benefits, are
structured to facilitate competing on quality and cost-
effectiveness. The rapid growth of HMOs testifies to their
competitiveness. At the same time, however, they have had to
compete on a less-than-level playing field, hampered by anti-
managed-care state laws and by competitors' pricing
practices. For example, some traditional insurers have tried
to keep their premiums under control by erecting barriers to
care — sometimes hidden (for example, waiting periods for
coverage) ; usually painful (increased deductibles and other
cost-sharing requirements) ; and often arbitrary (exclusions

for pre-existing conditions) . True competition requires
being able to offer comprehensive benefits with no strings
attached — which is a good working definition of the HMO
model.

• FREEDOM OF CHOICE can be enhanced under a reformed
health care system first by guaranteeing universal coverage —
since people without insurance can make few if any real
choices about their health care — and by making sure that
consumers have access to competing plans, including both fee-
for-service and managed-care models. Consumers can make more
informed choices by being provided standardized information
about the quality and cost-effectiveness of competing plans,
by being given the opportunity to change physicians within a
plan, and by having the freedom to change plans periodically.
HMOs already offer members these and other kinds of choices,
including, under some benefit options, the opportunity to
choose specialists not affiliated with the HMO. And national
health care policies that increase the supply of primary care
physicians will, of course, give consumers still more choice
in selecting among competing plans.

• COST CONTAINMENT nationwide on a sustained basis
becomes feasible in a system that encourages competition and
reinforces marketplace incentives in health care. Proposals
that rely heavily on regulation to control costs are likely
to be counterproductive, in that they could unintentionally
penalize HMOs that have been able to keep premium rate
increases lower than fee-f or-service plans, and could limit
health plans' ability to raise the capital necessary for
growth. The better approach to cost containment is to manage
costs as HMOs do, by encouraging enrollees to select a
personal physician to coordinate their care, emphasizing the
effectiveness of care, and incorporating cost-consciousness
in every decision.

One issue that must not be overlooked is the importance
of planning for the anticipated growth in enrollment in HMOs
and other managed care organizations which the Clinton plan
and other reform proposals anticipate. We hope that this
area will be fully explored as the Congress moves forward on
health care reform. This is the best "problem" our industry
could face, but it also one which needs to be addressed early
on by policymakers. The increase in the supply of primary
care physicians which is contemplated in the Clinton plan and
in legislation introduced in both the House and Senate will
be crucial to the expansion of managed care plans. In
addition, there will be an increased need for experienced
health plan managers. Capital generation which is sufficient
to support growth will also be essential, and capital needs
must be con-idered when any cost containm- nt mechanism is
under discu.jsion.

In addi ion to these general comments, we have several
specific areas within the President's proposal that we would
like to highlight.

Uniform national standards for health plans

The Clinton plan's establishment of federal Conditions
of Participation to define a set of uniform national criteria
for participating health plans is a positive step. However,
we believe that these federal standards should be broad
enough in scope that additional state and alliance criteria
should be unnecessary. A system with wide variations in
regulation from state to state will be needlessly confusing
and frustrating, and it could mean varying levels of consumer
protection. GHAA is in the process of developing a proposed
set of criteria which would apply to all managed care plans

and will address the need for basic standards for fee-for-
options as well.

In our view, federal standards should address areas such
as accessibility of services, adequacy of quality improvement
systems, and evidence of fiscal soundness. Any additional
requirements for state guarantee funds should be unnecessary
if these criteria are met, but in any event must operate to
make successful health plans pay the price for insolvencies
resulting the mistakes of regulators and the shortcomings of
less competent health plan management.

If HMOs and other managed care plans are to flourish,
restrictive state laws, such as those requiring that "any
willing provider" be permitted to affiliate with any health
plan, should be preempted. The ability of HMOs to
selectively contract with providers who are well-qualified
and who are needed to maintain the appropriate mix of
practitioners to best serve enrolled members is fundamental
to their success.

Regional alliances

We are awaiting the Administration's proposed
legislation to better understand the functioning and
structure of the alliemces within the health care reform
plan. While there appears to be some consensus that pooled
purchasing arrangements can successfully address the problems
of the small group market, many questions remain about
operation and value of the very large alliances outlined in
the Administration's plan. It may be worthwhile to consider
implementing purchasing pools for the small group market in
the near term, and with this experience as a foundation,
assessing the impact of alliances which would encompass 90%
or more of the health care marketplace.

If alliances are created for the small group market, we
agree that all qualified health plans should be permitted to
participate in them. This will afford equitable market
access for health plans and will promote a wide range of
choices for consumers.

Cost Containment

The President proposes to encourage cost containment by
creating a nationwide network of health care purchasing
alliances to negotiate with HMOs and other managed-care
plans, as well as with fee-for-service providers. But the
President plans to "backstop" that approach with controls on
premium increases, which could undermine efforts by managed
care plans to bring cost-ef < ective care to more Americans
The President's cost-contaiuxnent goals are commendable.
HMOs, however, have long demonstrated their commitment to
providing quality care at af jrdable cost - by coordinatint,
the care of a defined population while maintaining the
flexibility to respond to special needs. Since the
Administration seeks a nationwide system along the same
lines, it makes sense to encourage HMOs and other managed
care delivery systems that meet uniform standards to do what
they do best, unfettered, rather than threaten them - at the
outset - with price controls.

Benefits

The proposed comprehensive benefit package, which
emphasizes preventive care, builds upon the successful
experience of HMOs, and we believe establishment of such a
national standard is a fundamental building block of
successful health care reform.

Quality Monitoring and Data Collection and Analysis

The present commitment by private sector employers and
HMOs to the refinement and expansion of the performance
measures contained in HEDIS, as well as to the goal of
standardized data collection and reporting, is rapidly moving
the managed care industry toward better and more useful
information for consumers. It is encouraging that this first
step toward fulfilling the objectives of the Administration's
proposal is already underway. In light of this activity,
however, the creation of a massive data network and a sizable
regulatory structure to analyze the data and prepare reports
for consumers has the potential to inhibit progress thorough
the inability to readily incorporate improvements as they are
developed. We urge that any health care reform measure
should build upon efforts already in progress and allow
sufficient flexibility to take advantage of advances as they
become available.

We have appreciated the opportunity to share our views
and look forward to working with you as your consideration of
health care reform continues.

Chairman Staj^k. Mr. Rolland.

STATEMENT OF IAN M. ROLLAND, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, LINCOLN NATIONAL LIFE INSURANCE
CO., FORT WAYNE, IND., ON BEHALF OF THE HEALTH
INSURANCE ASSOCIATION OF AMERICA

Mr. Holland. Thank you, Mr. Chairman. I am Ian Rolland,
chairman and CEO of the Lincoln National Life Insurance Co. Our
affiliate employers health insurance is a primary supplier of health
insurance to small employers. It also administers and markets the
new California purchasing cooperative.

I am here today on behalf of the Health Insurance Association
of America, the industry trade group representing 270 commercial
insurance companies providing coverage to 65 million Americans.
My remarks today reflect our understanding of what the President
will include in the legislation expected on the Hill soon.

Comprehensive health care reform is the Nation's highest domes-
tic priority now, as we believe it should be. There are 37 million
Americans without health insurance coverage and many others are
without the coverage they need particularly with regard to preven-
tive services or they fear they will lose it if they change jobs.

Health care costs continue to spiral upward. The system needs
to be reformed, as the President said in his speech to the Congress
on September 22. It is time to fix it. We, the Nation's commercial
health insurers, agree. The President correctly identified the six
principles on which we believe true reform must be built — security,
simplicity, savings, choice, quality and responsibility.

We agree with the President and the many Members of Congress
and this subcommittee who have developed reform proposals found-
ed on these principles. HIAA's own vision for health care reform is
predicated on them. So let me tell you just what we stand for and
why I think we share much in common.

We are for cradle-to-grave coverage for all Americans, no exclu-
sions for existing or previous illness, coverage cannot be cancelled
if you get sick. If you change or lose your job, coverage goes with
you. Employers and employees both pay toward coverage. Subsidies
for those who cannot afford premiums, control malpractice law
suits and unnecessary tests, publish price and quality data, single
claim forms to control paperwork, incentives for healthy lifestyles,
stop shifting costs of Medicare and Medicaid to those with private
insurance, and the use of managed care to control costs.

Mr. Chairman, the HIAA has three major objections to the Presi-
dent's plan based on our reading of the September 7 working group
draft. We oppose monopolies granted to health care alliances, limits
on premium increases and global budgets and the use of pure or
flat community rating.

First, the mandatory health alliances. Aggregating purchasing
power is the intended objective of the health alliances. We certainly
do not oppose the theory, but we do oppose giving these alliances
the power to preselect which health plans will be offered and just
as important requiring that employer groups below 5,000 must pur-
chase their coverage through the alliance.

HIAA would favor having the government establish purchasing
alliances or cooperatives on a voluntary base. Under this system.

employers and individuals would not be forced to purchase their
coverage through the alliance. They would have the option of pur-
chasing through the alliance or maintaining their current coverage.
All health plans, whether or not they purchase or participate in the
health alliance, would have to play by the same rules. So neither
the alliance nor the plans operating outside the alliance would re-
ceive an inequitable share of risk.

Insurance reform such as elimination of preexisting condition
limitations and guaranteed issue of insurance along with a risk ad-
justment mechanism would be applied to plans offered both inside
and outside the alliance.

As I said before, we have some experience with the voluntary
California purchasing plan. Our early experience in that plan dem-
onstrates how competition can work. As of October 1, 3 months
after the plan has been opened, 17,484 individuals are enrolled in
1,068 groups. Twenty percent of those groups were previously unin-
sured. To the best of the knowledge we can obtain based on early
data, the cooperative is getting a reasonable spread of risk.

Premium caps and price controls. In effect the administration's
proposal would, after a transition period, force insurers to constrain
national health care spending at a rate no faster than the increase
in the CPI adjusted for population growth. To achieve this a plan
would cap premiums charged to a weighted average premium.

Starting down that road of price controls and premium caps
would be an enormous mistake. The United States experimented
unsuccessfully with price controls in the 1970s and as a result the
CBO points out "effective limits on premium increases would affect
both the quality and quantity of health insurance coverage avail-
able to consumers and their future access to new medical tech-
nology."

We in our industry are extremely concerned about the impact of
premium caps on the quality of care. They could lead to treatment
decisions based solely on cost rather than quality. They also would
force insurers to interfere unnecessarily, we believe, in the doctor-
patient relationship.

Mr. Chairman, we support reform. We are willing to change the
way we do business so that no American loses their choice of insur-
ance coverage. What we are asking for is the ability to compete,
nothing more, nothing less. We want to work with your subcommit-
tee as you proceed to develop a sound health care policy for Amer-
ica. Thank you.

[The prepared statement follows:]

TESTIMONY OF IAN M. HOLLAND
HEALTH INSURANCE ASSOCIATION OF AMERICA

Good morning, Mr. Chairman and Members of the Committee. My name is Ian
Rolland and I am the Chairman and Chief Executive Officer of the Lincohi National
Life Insurance Company. I am here today on behalf of the Health Insurance
Association of America which represents approximately 270 commercial insurers
covering approximately 65 million Americans.

Mr. Chairman, we commend the President for coming forward with an ambitious
blueprint for reform of the nation's health care delivery and financing system. With
approximately 37 million Americans currendy without health insurance coverage, and
h»lth care costs consimiing an ever greater share of the Gross Domestic Product,
there can be no question regarding the imperative for comprehensive reform.

In his speech to a Joint Session of Congress on September 22, President Clinton
identified six fundamental principles on which any reform plan must be based:
security, simplicity, quality, savings, choice, and responsibility. These are the same
principles on which HIAA's own Vision for Reform was construaed last year. I
would like to submit a copy of our Vision Sutement for the record.

In commixnications with the Administration, Members of Congress, and the general
public, HIAA has repeatedly stressed its wholehearted support for these principles, and
has proposed specific means by which they can be implemented. Let me emphasize
what we're fon

"Cradle to grave" coverage for all Americans.

No exclusions for existing or previous illness.

Coverage caimot be canceled if you get sick.

If you change jobs or lose your job, coverage goes with you.

Employers and employees both pay toward coverage.

Subsidies for those who cannot afford premiums.

Control malpractice lawsuits and imnecessary tests.

Publish price and quality data.

Single claim form to control paperwork.

Incentives for healthy lifestyles. Emphasis on wellness and prevention.

Stop shifting costs of Medicaid and Medicare to those with private insurance.

Using managed care to control costs.

While we have only reviewed the September 7, 1993 "Working Group Draft" and not
actual legislative language, there are elements on which we and the Administration

would seem to agree. There are, however, three particular points of disagreement with
the President's plan:

• reliance on exclusive health aUiances;

• the use of premium caps and other price controls.

• the use of flat community rating.

HEALTH ALLIANCES

The President's plan calls for the creation of large, government-mandated purchasing
pools through which everyone, except persons employed by an employer with more
than 5,000 employees, must purchase insurance. The theory underlying this concept is
that a large pool of purchasers will have significant market clout to bargain for
low-cost health care - market clout which small employers lack today. These
mandatory government alliances will be responsible for selecting which health plans
will be offered and will have the power to limit the mmiber of plans offered even if
there is constuner interest in purchasing an excluded plan. This does not seem
consistent with the goal of consimier choice or the goal of competition. And this
approach removes the employer from the equation except as a contributor toward the
insurance costs of employees and their dependents. This lessens substantially the
employers incentive to offer wellness programs to lower health benefit costs. And the
employer loses the "bargaining power" promised by the aUiance because the aUiance,
not the employer, selects the limited number of plans to be offered.

All individuals and employers with less than 5,000 employees will be denied a key
choice in the new system - they may not be allowed to retain their current insurance
coverage or plan. Not all plans will be allowed to compete in the new system.
What happens to those consumers who want to retain their current plan.? Or
purchase their coverage from an agent, who is, in essence, a benefits advisor to the
employer? Below are a number of ways that the Administration's plan will actually
deny choice for millions, according to their September 7, 1993 "Working Group
Draft."

• In a state which elects to establish a single-payer health care system, there
will be no choices of health plan at all (page 54).

• If a plan's premium exceeds the average by 20%, it need not be offered by
the health aUiance even if some famihes want to buy it (page 60).

• An aUiance may exclude a plan if the proposed premium would cause the
alliance to exceed its budget target even if some famiUes want to buy it and
even if the premium difference is insignificant in amoimt (page 61).

• An alliance may offer no fee-for-service plan if in its judgment the plan is
not viable (page 62). (How can they know it's not viable if they don't

offer the plan to find out if there is sufficient interest in it? What standard
is used for viability?)

• An alliance may offer only one fee-for-service plan (page 62). (There are
differences in fee-for-service plans even if every physician and hospital in the
community is included. These include differences in promptness of paying
bills, and differences in levels of customer satisfaction.)

Proponents of these alliances also suggest that significant administrative savings can be
realized. HIAA believes such savings have been overestimated. Certain administrative
functions must be performed by the alliance. These include plan enrollment, premium
collection, claims payments, and fraud detection. Under the President's plan,
enrollment is handled through the alliance. Today, employers handle employee and
dependent enrollment. That cost is not reflected in their insurance premiums. Most
employers send premium payments directly to the insurer or health plan. Under the
President's plan, the alliance will handle the enrollment of individxials, collect the
employer and employee share of the premium, and forward premium payments to the
plan selected by the employee. This can result in significant administrative expense for
the alliance when one considers that everyone except employees of the very largest
employers in the region must purchase coverage through the alliance.

Health alliances are untested. The states that have authorized purchasing alliances in
place have made them voluntary; only one is currently operational. The
Administration's plan forces anyone who works for a company with less than 5,000
employees, and all people with individual health insurance coverage into the new
alliance structure. In essence, that means that 80% of all Americans, roughly 200
million people [these numbers include everyone except 30 million Medicare recipients
and 20 million workers and dependents whose employers would be eligible to establish
Corporate Alliances. Source: "Congressional Health Care Workshops" materials dated
September, 1993], will be receiving health coverage through an imtested aUiance system.
There is no precedent for such massive change to a process so essential to the welfare
of all Americans. After all, according to a June 1993 "Harvard School of Public
Health" survey, Tl^k of Americans surveyed are pleased with their health care coverage.

The health alliance structure effectively bars entry of new plans after the initial years.
Plans not selected in the first year will be unable to compete in the region, and will
not be aroimd to bid the following year. Within a few years, only a handful of
competitors will remain in each aUiance area. The plans that survive may not be the
most efficient and effective. Success in the early years of the alliance may depend
more on a plan's ability to "sell" itself to individual consumers through media
advertising, than on the quahty or efficiency of the care it deUvers. The plan creates
a disincentive for competition that would lead to market constriction. If consimiers
do not like the plans offered by the aUiance and are on the receiving end of poor
customer service (for example, they can't get their calls to the 800 number answered)
they do not have any alternative - it is the "only game in town."

One alternative to monopoly health aUiances are voluntary health alliances. HIAA
would favor having the government establish purchasing cooperatives or aUiances on a
volimtary basis. Under this system, employers and individuals would not be forced to
purchase their coverage through the alliance, they would have the option of purchasing
through the alliance or main tainin g their current coverage. AU health plans, whether

or not they participate in the health aUiance, would have to play by the same rules so
that neither the alliance nor plans operating outside the alliance would receive an
inequitable share of risL Insurance reforms, such as the elimination of pre-existing
condition limitations, and guarantee issue of insurance, along with a risk adjustment
mechanism, would be apphed to plans offered both inside and outside the aUiance.

If health alliances are truly more administratively efficient, and better at pooling risks,
then the carriers operating through the alliance will have lower premiums and will
naturally gain market share. If, on the other hand, employers and individuals prefer
to deal directly with an insurance company rather than a large bureaucracy, they
would have that choice. The market, not the government, should determine which is
the more efficient way to insure all Americans.

The State of California has set up a volimtary pvirchasing plan called the "Health
Insurance Plan of California." This plan is administered and marketed by Employers
Health Insurance Company, a subsidiary of Lincoln National. The plan was up and
running on July 1, 1993, and has grown substantially. In jxist three months the plan
has covered a total of 14,500 enrollees, 13,000 of which are imder the age of 50.
Eighteen plans are offered for participants to choose from, 15 HMOs and 3 PPOs. A
total of 900 employer groups, varying in size, from 5 and 50 employees each,
participate. The State of California is spht into 9 geographic regions. Today,
two-thirds of the new groups are sold by agents. The plan receives over 2,000 calls
per day for information. Other states are in various stages of setting up voluntary
purchasing alhances - Florida, Washington and Minnesota, to name a few. All
alliances that have been developed in the states have voltmtary, not mandatory
participation.

PREMIUM CAPS AND PRICE CONTROLS

The U.S. experimented imsuccessfully with price controls in the early 1970's; we
should not repeat the mistakes of the past. Price controls would entail extensive
government rationing because in order to control costs you must control volimie as
well as prices. The Administration's proposal, after a transition period, would
constrain national health care spending to increase no faster than the rate of increase
in the Constuner Price Index, plus population growth. To achieve this, the plan
woxild cap premiums charged to a weighted average premiimi. Limiting health
insurance premiimis doesn't affect rising provider charges, the increasing volume and
sophistication of services provided, or continuing medical progress. In a study released
last month, the Congressional Budget Office questioned the efficacy of premiimi
controls, commenting that they would have imdesirable consequences. "Effective limits
on premitmi increases would affect both the quantity and quality of health insurance
coverage available to constmiers and their future access to new medical technologies."

Implementing the President's plan will require significant new capital investment, but
there will be no incentive for private investment. In a price controlled/premium
capped market, companies will be severely impaired in their efforts to attract capital.
Capital will be needed to organize the networks of hospitals, doaors, and other
providers that are the core of the new system. Capital is needed to assure that health
plans have adequate reserves to cover imexpected losses and guarantee solvency. The
new system will require more capital than the current system both to cover the 37
million vminsured and to cover the many millions of employees who will have to shift
from self-insured employer plans to fully insured plans offered through the health
alliance system. Most self-insured plans are not likely to have any significant reserves
to offset the capital requirements. These capital requirements raise great concern about
the solvency of health insurers. Over the last decade, the profit margin of the health
insurance industry has averaged 1.75% (see attached chart). With that narrow margin,
if the premium cap is set too low and carriers are vmable to cover submitted claims,
insolvencies will occur.

Premiums will be limited at the same time new and imprediaable demands are being
made on health plans and insurers. Insurers will have trouble predicting their expeaed
costs because the following factors will not be known ahead of time:

• How much care will the formerly iminsured use once they are insured?

• Whether the risk adjustment mechanism will adequately protect the plan
against a greater-than-average proportion of high-cost enrollees?

• What assessments will be imposed by the various guarantee funds that will
be set up to protea consimiers from insolvencies?

COMMUNITY RATING AND OTHER COSTS IN THE NEW SYSTEM

The administration's plan envisions the use of pure community rating to determine
premiums establishing separate rates to reflect family status. Commimity rating will
increase premiums for yoimger, healthy workers and low-risk people who make
healthy lifestyle choices, for example, non-smokers. Why should those who exercise
regularly and don't smoke pay more for their coverage to subsidize those who smoke
two packs per day? The young, who are least able to afford coverage and tend to use
the system less end up paying more in the new system.
Regional aUiance members will have to pay higher premiums to subsidize the
additional costs of:

• underpayment by the government for Medicaid eligible;

• bad debts of people who don't pay their premiums (health plans cannot
drop people for non-payment of premiums imder the Administration's
proposal);

• people who are currently enrolled in state-operated high-risk pools;
^ • early retirees no longer covered by their employers' plan.

As this Subcommittee is well aware, privately-insured patients pay higher prices in
order to make up both for uncompensated care (the uninsurecQ and undercompensated
care (Medicare and Medicaid). Universal coverage will all but eliminate imcompensated
care, but the Administration's proposed method of financing its proposal will make
Medicare imdeipayment much worse than it is today. We see no evidence that this
effect has been taken into account in the Administration's estimates of likely premiums
xmder its plan.

LONG-TERM CARE

HIAA is pleased to see that the Administration supports several provisions which
would clarify the tax treatment of private long-term care insurance. These changes
would greatly increase the affordabihty of these products and help millions of
Americans protect themselves against catastrophic long-term care expenses.

If the Administration continues to promote the tax changes we seek, HIAA would
also support the creation of federal standards for long-term care insurance products.
However, such standards mtist not be so onerous that they prohibit all but ' Cadillac*
policies from being sold. Equally important, consimiers should be allowed to purchase
federally-approved policies in all states; separate state approval should not be necessary.

We have two concerns with the newly proposed national home care program. First, a
far better use of limitpH tax dollars would be to target care to those unable to protect
themselves, and encourage those who can afford to do so, to purchase private
protection. Secondly, we are concerned that the Administration will "sell" the public
on this program as a down-payment toward a national solution to long-term care
when even this modest home care benefit is estimated to cost $80 billion over five
yean. Costs alone dicute that the iJtimate solution must be a public-private
partnership.

TRANSITIONAL INSURANCE REGULATIONS

The transition to a new health insurance market cotild take several years, especially if
the new maritet structure is as imnecessarily complex and unwieldy as the President
proposes to make it. The Administration has proposed, according to their 'Woriung
Group Draft", a set of regulations to govern insurers' behavior dvuing the transition.
While the Administration's intent is not clear in the drafts we have seen, we would
oppose any attempt to prohibit insurers from withdrawing entirely from the health
insxuance business or any significant part of it, such as the individual market or the
small group market. In a free country, government should not coerce any corporation
or person to continue in any particular line of business.

Some of these proposed rules we would support. In fact, they closely parallel
insurance reforms we have been promoting at the state level for several years. I refer
here to such requirements as guaranteed renewal of coverage, automatic acceptance of
new entrants in currendy covered groups, and portability improvements which prohibit
exclusion of coverage for pre-existing conditions when previously insured people change
jobs or their employers change carriers. These reforms can be implemented very
quickly, and do not require a new bureaucratic structure the President proposes.

Other proposed transition rules present severe difficulties for insurers. The rules
establish de faao premium caps by giving states the right to approve or disapprove
rate increases in excess of a yet-to-be-prescribed percentage. For reasons explained
earlier in greater detail, we oppose limiting insurers' ability to charge rates sufficient to
cover the real costs of serving their enrollees.

Also, there are administrative problems with the proposed interim rating structure. It
differs significantly from the rating refonns that have been enaaed in more than half
the states in the past three years and will therefore require significant time and
administrative effort on the part of both states and carriers to implement, all for a
scheme that wovdd remain in place for a year or two.

In conclusion, I want to again emphasize that we support more of the President's plan
than we oppose. We want to be a responsible participant in the national health care
debate and want to work with the Administration and Congress to develop national
reform which achieves imiversal coverage, promotes individual responsibility and cost
containment, preserves choice and maintains the quality of our health care system.
During this discussion, we must remember that our health care system has many
excellent features and we should build on them.

Chairman Stark. Thank you.

Mr. Thomas.

Mr. Thomas. Thank you, Mr. Chairman. I guess I would ask this
question of all of you. I asked it of the last panel.

On October 5 HHS Secretary Shalala, in front of the Energy and
Commerce Committee, described the National Health Boards as a
minor oversight board within the Clinton plan. I guess collectively,
would you agree with that assessment given your knowledge of the
Clinton health care plan, that the National Health Board is, in
fact, an oversight board? Does anyone agree with that?

Mr. English. I would certainly not agree with that. I have read
the 239-page document and the National Health Board that is de-
scribed in that document is given very broad powers, including the
power to set the price of the standard benefit plan and to allocate
global budgets to different regions. This does not seem to me to be
a minor oversight role.

Mr. Thomas. I am still puzzled by her statement. I hope it wasn't
flippant, because we are dealing with a serious problem, and for
her to assume that it is a minor oversight board boggles my mind.

Mr. English and Mr. Rolland on insurance questions, I am a lit-
tle puzzled by your strong advocacy of HIPCs to control prices for
small business. Mr. Rolland, you indicated that you would like to
see a voluntary structure. Here is my question. We are looking at
economies of scale and I guess I am looking for another reason why
you see, Mr. English, enormous advantages in HIPCs.

I understand the economies of scale that drive down the prices,
but what you are doing is setting up, to give an analogy that
makes sense to me, an exoskeleton. Since the individual company
can't get the economy of scale, you are going to set up a bureauc-
racy to get it. The problem is you don't like the Clinton bureauc-
racy, but any HIPC is going to be a bureaucracy set up to try to
deliver the economies of scale that the large corporations have.

Why wouldn't you rather, as someone who at least in the Clinton
plan looks like the industry is basically going to disappear, be ad-
vocating an internal skeleton? That is, if we could get a general
idea and you folks know because you negotiate prices with the For-
tune 500 — if you could set up a composite Fortune 500 regional tar-
get model price and figure out how you make the administrative
adjustments to deliver that price to the small business person, you
don't need the HIPC as an exoskeleton to create the competitive
powers small folks don't have individually. It gives you a reason for
continuing to exist and in fact performing administrative functions
that, to a certain extent, you have abrogated now because you
haven't been required to do it — but if the government is going to
dictate the fact that no one is excluded, that the benefit package
is going to be the same, why are you punting on one area that
would give you a continued role in the system?

Mr. English. I don't think we are punting. I think we have a dif-
ferent view of the HIPC than what is in the administration plan
and maybe a different view than is in the common

Mr. Thomas. Would yours be mandatory or voluntary?

Mr. English. I would opt for mandatory. Some companies think
it should be voluntary. We think the major problem with our

health care system is the ineflficiency of the market with respect to
small employers and individuals.

Mr. Thomas. I understand that. It is the economies of scale and
inefficiencies, but why are you passing that up?

Mr. English. It is more than that. It is a question of an efficient
competitive market. Envision a supermarket

Mr. Thomas. I have read all the models. Let's not use the kind
of analogies that are out there. Just give me a response to my
question and I will better understand where you are coming from.
Why don't you as an industry want to be able to provide all of the
benefits of a HIPC internally in terms of your adjustment for a
small purchaser? Or do you think it is impossible for the insurance
industry to do that internally?

Mr. Roi.iAND. Could I try that? First of all, I would emphasize
the HIAA does support only voluntary HIPCs. We believe there
may be some merit in these HIPCs in terms of their ability to con-
centrate purchasing power, but we believe they are untested and
we believe they have to win in the market place and we shouldn't
preordain them as winners through legislation.

Our view is if they are as good as people say they are they could
win in the marketplace and ought to be tested that way.

Mr. Thomas. In a voluntary structure you are requiring them to
prove themselves. If you make it mandatory I think an industry
that is desperate under the Clinton plan wouldn't want to mandate
an exoskeleton providing adjustments that I would think would
allow them to continue internally. I am out of time.

One question to the Blues and perhaps HMOs. This business of
the Clinton plan setting up these alliances and dictating the global
budget, it looks easy on paper, but basically how many of the com-
panies over 5,000 were going to stay separate?

Apparently, they will all come under the program anyway. Can
you imagine how we are going to set, first of all, the first target
and what happens if you don't reach it and the enormous disloca-
tion of the adjustments that occur — they got to hit you — if you
make the decision, and it is wrong? Given the billions of dollars
that are at stake, the couple of percentage point miss is enormous.
If you miss it the first time, what do you have to guarantee it the
second time?

You are going basically from group insurance with these large
companies to individual structures and it is a different world in
terms of assessing what is going to happen and then everybody
gets to change after 1 year. You miss the target and everybody is
unhappy and they change. You have a whole new model to have
to price.

How comfortable are you with the ability of the Clinton model to
be fairly close to the targets?

Ms. Lkhnhari). We are very concerned about that. You have a
macro and a micro issue here. On the micro level, how do you in
the first year set your average per capita costs in an area. You
have many things going on. You have a pent up backlog of care
that is needed. You are moving to community rating. You have so
many things going on at once that you don't know how it is going
to a affect utilization patterns.

At the microlevel, the decision on spending by region is being
made in Washington. They hope it is the right amount of money
going the right places to cover the costs that are needed. If it is
not, the States and the alliances will be in the position of telling
health plans here is x amount of money. We know it is not enough
to do what you need to do, but try to do it anyway. That is not a
sustainable strategy.

Mr. Thomas. Apparently overseen by someone who thinks the
National Health Board is a minor oversight board. Thank you, Mr.
Chairman.

Chairman Stark. Let me see if I can make a first step toward
the President urging us to get together and see what we can do to
find agreement among all the players in this. I take it that each
of you endorse competition, am I correct?

Mr. English. Correct.

Chairman Stark. And you would all be perfectly willing — ^you
represent slightly different groups — to compete one with the other
without government interference, right? Is there anybody who
doesn't want to compete with anybody else at the table?

Ms. Ignagni. Mr. Stark, I would say from the standpoint of our
industry, what we have asked for is government intervention to the
extent that we would ask government to create a level playingfield
that we do not have today in the market.

Let me be specific what I mean. There are existing practices in
the market today; namely, preexisting condition limitations, wait-
ing periods, et cetera, that are difficult in a competitive situation.

Chairman Stark. I think everybody at the table will sign on to
that. None of you wants to keep medical underwriting anyway. So
we will spot you that. Are you willing to compete with those other
folks?

Ms. Ignagni. Absolutely.

Chairman Stark. Now, how about making a fifth seat at the
table? Will you compete with me? Anybody afraid of Medicare?

Ms. Ignagni. We are competing with you in the HMO industry.

Chairman Stark. Do you mind?

Ms. Ignagni. We are delighted to do it.

Chairman Stark. Half of them work — the Blues

Ms. Lkhnhari). By that do you mean encouraging the public to
enroll in Medicare?

Chairman Stark. Let us offer it, let us compete.

Ms. LKHNHAiti). We continue to think that the Medicare program
based on a classic fee-for-service model is not a model we want to
perpetuate in any way. We ought to be moving Medicare into the
managed care environment.

Chairman Stark. You are going to let the public decide. If I play
by the same rules you do, will you let me compete? Yes or no?

Ms. Lkhnhard. No.

Mr. RoLLAND. I think if the rules of the game are the same with
everybody it might be worth a try. I would have to see more de-
tails.

Chairman Stark. Mr. English?

Mr. En(]LISh As long as the government has the ability to set
prices, it would be very difficult

Chairman Stark. I didn't say that. Because we set prices for
Medicare?

Mr. English. Yes.

Chairman Stark. What if we leveled the playingfield and set
prices for everybody, used the Medicare system as some of us have
suggested. Then do you mind competing with us?

Mr. English. I think if you set prices there would be no competi-
tion.

Chairman Stark. There seems to be competition now with us
and HMOs. It is interesting, you have a strange definition of com-
petition. It is competition where you are the only ones in the mar-
ket and you exclude the other guys. I have always heard these free
enterprise people saying we will beat the government. Those lazy
bureaucrats can't do anything. You guys are running like a bunch
of chickens except for Mr. Rolland, who is in the West where com-
petition really got started. Didn't it, Mr. Rolland?

Mr. RoLl^Nl). That is correct. I think if you level the playingfield
we could do well against you. That means that everybody pays; the
cost shifting is ended.

Chairman Stark. I notice that generally the four of you all agree
that the underwriting should be severely restricted or eliminated —
I don't know if you go exactly that far — and that probably you
would buy into an approach toward community rating and particu-
larly if it were phased in over a long enough time, but it wasn't
an abrupt universal. Fair enough so far?

Nothing else that you have all talked about, except you are all
for cost containment, but you are rather vague there and you are
certainly not agreeing, and you certainly don't want me to do any-
thing. You want to do it all by yourselves.

Mr. Rolland has a reservation on that, I know, because of cost
shifting, but what if there were our result in this bill? You might
worry that your clients won't stay with you very long if you let me
compete. We will do the insurance reform that the insurance indus-
try could generally live with, no more underwriting, open enroll-
ment, those sorts of things, and move toward a community rating
structure, and then we just say that is fine and Medicare will con-
tinue to go along as they do, and my guess is we would subsume
Medicaid into Medicare and probably toss CHAMPUS in.

Will you be content then with the system?

Ms. Ignagni. Are you implying that there would be comprehen-
sive benefits for all Americans across the board?

Chairman Stai^k. You take your chances as to how you get them,
but yes. It might be a voucher to individuals or an individual man-
date with a subsidy. It might be helping small employers, or letting
big employers continue in their present plan, negotiated by union,
whatever is out there. If that is all we did, you would be com-
fortable?

Ms. Igna(iNI. I would like to distinguish myself as an individual
who would raise some questions about your proposal — I think now
that I understand where you are going. We believe that — the first
principal for us is that we have — ^based on an explosive growth in
HMO enrollment over the past 10 years in the absence of any
major legislative change at the national level, we have gone to a
fourfold increase in 10 years and we think that is going to con-

tinue. We are for the principle of consumer choice so we are very
comfortable with the way you posited that question.

I need to also raise the issue of the infrastructure and the clean-
ing up of very conflicting standards. I think although it sounds
veiy technical and somewhat boring

Chairman Stark. That is not before us.

Ms. Ignagni. It will be before you if you want to assure consum-
ers that there is a good housekeeping seal of approval so in effect
there are qualified plans out there in the market

Chairman Stark. We can't put Metropolitan Life in jail for crum-
my marketing practices, like Pericles that stole $12 million and
they show up again in Texas. Let's stay with what we think we
could do in health reform.

What I am saying is I am not sure that the rest of the public
and the country could survive without cost containment on the
public side, and on the private side. We have it in the public side
and it works, but it shifts costs on to the private side and the major
corporations, I think, would give you guys about a year when they
figure out what happens, particularly if we add $100 billion or
more of cost cuts on the public side.

While it may not affect your businesses, your clients, I think,
would be giving you what for.

I don't know as there is any agreement among you as to how we
could control cost.

Mr. English. I accept the competitive challenge that you have
described as long as all payers in the system paid their fair share.
But so long as we have one system such as Medicare in which peo-
ple have freedom to have what they want without regard to the
consequences of cost, to use an example that came up somewhere
else, they could go to the Mayo Clinic

Chairman Stark. They also have the freedom to join a HMO.

Mr. English. And they have the freedom to be in Medicare and
go wherever they want, ao whatever they want, whatever their doc-
tor thinks is appropriate so long as they pay for it. As long as they
paid the full cost of that, I could compete quite effectively.

Chairman Stark. As long as they pay what full cost? They have
an insurance plan that is less generous than most of yours. Medi-
care is not very generous.

Mr. English. They are the same.

Chairman Stark. No, they are not. Medicare benefits, if you will
pardon me, are around the 15th percentile and Mary Nell's Blue
Cross low option is the 85th percentile. We have no limit on copays.
Every plan I bet that you sell has an out-of-pocket limit.

Medicare does not and that isn't very generous. All plans are the
same in terms of the benefits they provide. It is a matter of
deductibles, and copays. So Medicare leans heavily on the private
insurance industry, and the generosity of Medicare is not great. So
I don't think that is fair to people who decide to go to the Mayos
and could spend tens of thousands of dollars whereas, they may not
have to under some of these plans.

Mr. English. I suggest that whatever it costs, and there is grow-
ing empirical evidence that plans that allow people total freedom
of choice cost more than managed care plans do. As long as every-
body pays their own share

Chairman Stark. The managed care plans aren't that good and
the people are getting smarter and they figure they know where
they want to go. They are getting sick of being told they have a
shabby list of doctors that can't make a living in a good system,
so they are shoved into limited areas, particularly if they are poor
and minority and on Medicaid. They get the short shrift of the
butcher shop hospitals and really bad doctors and it doesn't take
the public long to figure out who is gypping them, so I would give
the public some credit even if they don't read consumer reports for
figuring out how money is being saved.

It was Kaiser who said they kept the costs down by cutting bene-
fits. It doesn't take a rocket scientist to figure that out. You have
just answered my question. I was going to suggest that none of you
would submit that your plans have any more choice than Medicare.
None of you would suggest — Mr. English, you have answered the
question — that your plans that are offered to the public don't have
more choice than Medicare. Another way, Medicare has more
choice for its beneficiaries than any other plan offered in the mar-
ketplace today.

Mr. RoLl^ND. It certainly has broad choice.

Ms. iGNAGNi. Mr. Chairman, I would say that Medicare bene-
ficiaries, although on paper have unlimited amount of choice, in ef-
fect they have no boat to navigate through a very complicated de-
livery system. I think that that is the point you will have to wrestle
with in terms of making improvements to that system and then
moving to the system that we have now

Chairman Stark. Dr. Todd, might explain to you how he might
challenge you on that and say would you rather trust an M.D. or
an MBA to navigate you through that thicket.

Ms. Ignacni. I won't speak for Dr. Todd, but I would be happy
to engage in that debate. But I would say that as a consumer, as
a mother, the thing that scares me most is the promise that people
brag about the notion of being able to choose a doctor from the
phone book. I think that is what you have under Medicare. I re-
spectfully submit that that is not the right situation. People don't
know how to evaluate quality and that is the long-term issue for
us.

Chairman Stark. I guess that is true, but what I would submit
then, and I hate to quote from Mary Nell's testimony, but I don't
think the insurance companies know a lot about quality either.
What they know about is, as she says here, it is easier for insurers
to hold down costs by screening out high risks than by managing
overall health care costs and goes on to prove her point.

What I think insurance companies are very good at doing is red-
lining, deceptive marketing practices, and making a lot of money
by squeezing benefits out of plans. Their record is clear on that. I
am not sure that those are the folks I want taking care of my con-
stituents, because the social record of insurance companies is abys-
mal, almost as bad as Members of Congress.

Mr. RoLi^Ni). Mr. Chairman, if I could, I would submit that even
before this debate on health care started at the national level, our
industry developed a significant concern about some of the prac-
tices you are talking about.

Chairman Stark. I know that.

Mr. RoLij\Nl). And developed our vision statement that called for
substantial reform in that insurance delivery system and had been
advocating that and pushing that at the State level for quite
awhile. In fact, 40 States have adopted significant insurance reform
practices, and so we have been advocating that.

We are as concerned as you are about some of the practices that
have gone on in our industry and we are trying to do something
to fix that up and are supporting strongly the aspects of the pro-
posals we see on the table that are consistent with that.

Chairman Stark. Let me make one comment about California,
and this does not have anything to do with the fact that you are
running it, but my concern — the California HIPC is different from
other HIPCs, I understand.

We have over 5 million uninsured in California, and after 3
months, and that is a fairly short time I must admit, we have only
enrolled 15,000 of those 5 million uninsured. At that rate, it will
take us about 80 years to get the uninsured in California into a
plan.

Seeing as 17 of the 18 plans have costs far higher than what the
President is suggesting, which people are already saying is too gen-
erous, I just have some question if that alone is going to do it. We
are going to have to provide those folks some money to buy into
the plan. I don't think you can squeeze a lot more out of the plan
in California.

Mr. RoiJ^ND. I certainly agree with that. I don't think a vol-
untary HIPC in California is going to solve your uninsured prob-
lem. There have to be other approaches. Certainly people who are
poor and indigent and small business owners have to be subsidized
in their ability to get that insurance.

Chairman Stai^k. I agree. Dr. McDermott.

Mr. McDkrmott. First of all, let me ask Miss Lehnhard and Mr.
English and Miss Ignagni, do the members who participate in your
plans do it voluntarily?

Ms. Ignacni. You mean individuals, consumers?

Mr. McDkrmott. Yes.

Ms. Ignagni. Yes.

Mr. McDkrmott. Mr. English?

Mr. English. There are a variety of health plans. Some cir-
cumstances employers will pick one HMO with one main indemnity
plan. They will also offer other choices.

Mr. McDki^mott. So if an individual employee chose your HMO
out of a series of other things that were offered, so they voluntarily
joined

Mr. En(]LISH. a series or the ability to opt out for fee-for-service
type coverage as well.

Mr. McDki^mott. The same is true of Blue Cross and Blue
Shield. Ms. Ignagni raised this question — this is a question that
has been in my mind for some time, so I want to ask you, Mr. Eng-
lish and Ms. Lehnhard — do any of your plans involve themselves
in the managed care proposals related to Medicare, the 30 million
people in Medicare, 2 million of them are in managed care.

Mr. Engijsh. We do.

Ms. Lkhnhard. Yes.

Mr. McDermott. So all three of you have people who ate in
managed care in this present system under Medicare. It seems to
me that that confirms in operation in this country that it is pos-
sible for both managed care and the fee-for-service system to oper-
ate under a single payer plan. Medicare is a single payer plan.

It is the only operational one in this country that works for sen-
ior citizens, and there you have both senior citizens choosing, some
to go into managed care, some to go into the fee-for-service; so they
have the maximum range of options under the Medicare system.

What objections do you have to a single-payer financing system
for the health care system in this country?

Mr. English. A single-payer system to me, as I understand the
term, is a government takeover of 15 percent of our economy. It
does not need to be done. It would cause massive disruptions.

It seems to me that if it were done, it would be done with a tre-
mendous amount of political pressure on promising benefits. A tre-
mendous amount of political pressure to fix the prices. The ulti-
mate consequence of that would be an initial significant deteriora-
tion in quality, followed by cost overruns. It would be a disaster for
our country because it would lack the element of competition that
I think is so vital to our system.

Mr. McDermott. But you have that competition in Medicare
today.

Ms. Lehnhard. I would say that we don't think you have it to
the degree you need it. We have dropped significantly our partici-
pation the Medicare risk business because of what we consider ar-
bitrary actions on the part of Medicare that you wouldn't see if this
were true competition in the private sector. I think we are down
to about a third of the plans that started out

Mr. McDermott. Tell me what the arbitrary actions of Medicare
are.

Ms. Lehnhard. Cuts in the payment rate in Medicare.

Mr. McDermott. You mean not increasing as fast as you want
them to.

Ms. Lehnhard. Actual cuts. Changes in the — I will have to get
back to you with specific examples, but I hear this concern from
our plans — changes in the rules, constant changes in the rules. It
is very different dealing with the government. What they are most
struck by is lack of innovation and lack of creativity in a huge bu-
reaucracy that has to follow one rigid set of rules primarily.

Ms. Ignagni. Mr. McDermott, I would answer the question in the
following way. I think it is a very interesting one. The issue of the
Medicare formula, this is a corollary to Mary Nell's point, has been
a very difficult one for plans that have participated in the system.
She is right, there has been some frustration because we have
found that because of that formula system, which could very much
work like the proposed premium cap system, there have been some
difficulties in actually providing what is considered to be a fair pay-
ment for the price of delivering services to the particular popu-
lation group.

Because of technical problems in the formula, because of the way
that is structured right now, there has been a decrease in the
amount of money and a reduction, zero increase to some of the
plans that are in the largest highly penetrated managed care mar-

kets. I will say that HCFA is in the process of trying to deal with
that and working closely with us and I think other members of the
panel in trying to reconcile that. But some of the same kinds of
problems could present themselves in the premium cap formula
that is on the table for discussion under the President's proposal.

Mr. McDermott. So the only objection I am getting from you is
technical adjustments in the formula in figuring out what the capi-
tation rates should be

Ms. Lehnhard. Technical, philosophical, operational.

Mr. McDermott. Tell me about the philosophy.

Ms. Lehnhard. The philosophy here is the amount of money al-
located; this is all you get, it is not true competition. It is just the
difference between a massive bureaucracy approach to try to cap
spending and a competitive approach where the market sets the
appropriate level of spending.

Mr. McDermott. Medicare uses about 4,500 people who cover
the whole country. So we are not talking massive bureaucracy. You
are saying that you can't accept the idea that there is a single
payer that pays capitation. It seems to me that is what you have
today.

You operate on a capitated care basis in your plans. Somebody
gives you $109 a month per person or $143 a month per person.
Why do you care where that money comes from? Why does it have
to come from 1,500 insurance companies, with all due respect to
Mr. Holland?

Mr. English. Today we have the freedom to compete and the
freedom to choose. We can look at the HCFA reimbursement rates.
We can look at our own ability to control hospital days and cost
confinement. We can put together a packaged program, and if we
feel we can make a profit on it, we can be in that marketplace. If
we don't, we can withdraw from that marketplace.

If there were a single payer throughout the country, we would
have no choice. We would have to live with the price control that
was installed or go out of business.

Mr. McDermott. So your argument is you get different kinds of
dollars in Boeing and from Westinghouse or General Electric, and
if you don't like the General Electric dollars because they are pur-
ple instead of green, you have a right to reject them, but if you had
a single payer all the dollars would be green and you don't like
them all being green.

Ms. Lehnhard. I think from the General Electric perspective

Mr. McDermott. Never mind General Electric. I want to talk
about your perspective.

Ms. Lehnhard. It is not so much that we turn them down, it is
that they make a choice based on competition and we are not con-
strained by very strict rules on how we do our day-to-day oper-
ations, like for example, the constraints you have in the Medicare
program.

Mr. English. It is not the source of the dollars or the color of
the money. It is a question of in a free market — for a free market
to be able to operate, buyers have to be willing to buy and sellers
have to be wiling to sell and a equilibrium price has to be reached.
That is the way free markets operate.

If you are dealing in a market where the government dictates a
price, you have no choice.

Mr. McDermott. If they deliver a $4,200 check to one of you, I
can choose which one of you gets it, what difference does it make
to you where that $4,200 check came from?

Mr. English. No difference.

Ms. Ignagni. I think in principle, the answer to your question
that we are all giving is that were the Congress to decide that the
direction they want to go in is a single payer, that we would all
compete in that market and consumers would choose.

However, I think the point that we are getting to is more fun-
damental to the current discussion, which is what would be the
terms and conditions and how would the system be organized. I
think as we look at elements of the President's proposal, we are
concerned about the picking and choosing of a regulatory structure
in the market and actually preventing one aspect of a delivery sys-
tem being out there in the market offering services that could theo-
retically limit consumer choice. That is a major point that I think
has been made throughout the discussion here.

The second thing is that is it prudent for a regulatory structure
to take over some of the new initiatives that have been developed
by practitioners in the market in terms of report cards and quality
and things of that sort. I think we will have to discuss that further.

I think you are hearing some concerns about the reach of a regu-
latory structure, whether it be in a single payer world, an alliance
world or some other world that hasn't been on the table. I think
that is what the debate is going to be all about.

Most certainly our plans will be competing in whatever world is
possible and I think everyone is saying that we stand for the prin-
ciple of consumer choice. The question is how do you design the
overall structure and is it such that you prevent plans from partici-
pating in the market?

Is it so tightly regulated that in fact you don't have the consumer
choice that would be promised on paper? That is the issue.

Mr. McDkrmott. We are looking today at the 800-pound gorillas.
These are the folks who are going to deliver the health care in the
President's plan.

Ms. Ignagni. In any plan.

Mr. McDermott. You know that the development of managed
care is going on in this country at a belter skelter rate. The Sisters
of Providence in Seattle are buying up doctors' practices all over
the place, putting together netwon^^s. Doctors are trying to sell
their practices to big insurance companies. It is going on at an
alarming rate without most people being aware of it.

But what you are asking for, it seems to me, by saying that you
want the President's plan is that you want a system put into law
which will herd all the Americans through financial incentives into
managed care. That is basically what this law does for you. If this
law passes, if I charge somebody $1,500 more to be involved in a
fee-for-service system than I do for one of your three plans, then
for a lot of people they will come to you whether they want to or
not.

They are going to be forced. Mv first point was everybody now
in your organizations are there voluntarily. None are dragged kick-

ing and screaming or forced financially to come to you. But inher-
ent in the President's plan financial incentives which drive them
all into your corral. I understand why you like the plan.

Chairman Stark. Mrs. Johnson.

Mrs. Johnson of Connecticut. Thank you. Before I go to my
questions, I would like to ask you to submit for the record mate-
rials that enlarge on this issue, the ways in which the rules under
which Medicare functions prevent you from innovating in a way
that reduces costs and improves quality, prevents you from re-
sponding to quality issues or care concerns that individuals have,
and any other aspects of the rigidity of Medicare, because I hear
this all the time.

[The information follows:]

The following are examples of additional regulatory requirements and administra-
tive oversight which make participation in Medicare risk contracting more burden-
some and may discourage managed care organizations from entering this market:

— limitations on the terms and conditions of relationships with providers, com-
monly referred to as the "incentive payment regulations";

— additional requirements for classification as a federally qualified HMO or

CMP;

— problems with the methodology for rate setting of the area adjusted per capita

cost (AAPCC); and

— limitations on out-of-arca coverage of participants in risk contracts.

Mrs. Johnson of Connecticut. Fifty percent of my caseworkers
work is advocacy with Medicare to try to get what recipients ought
to be getting anyhow. So I don't see single payer as offering either
the flexibility, quality or cost control that we need.

But I think we need a better understanding of what are the prob-
lems under Medicare now and how does it cut out innovation and
how are rigid rules backfiring on the people — I understand how the
rigid rules around the formulas have created cuts in reimburse-
ment rates in the very areas where we were supposed to be in-
creasing reimbursement rates.

So I think we need a better understanding of that, because if we
are going to go to a system where the national government is the
only payer, we will also have behind that a whole set of national
rules and all the problems that we have in Medicare. We have to
be willing to deal with that on the scale that we would have to.

What interests me most is when the First Lady testified before
us, and everything she and the President have said and everything
most of the serious groups concerned with health care reform are
saying from the single payers right on down to the House Repub-
licans is that we have to reorganize how we deliver health care
services.

Now, you offer us the first real opportunity that we have had to
look at this issue of service delivery reorganization and capital in-
vestment. I would like you to be as specific as you can about what
capital investment is required, what are some of the kinds of ac-
complishments that new investment have achieved. I was very in-
terested, Mr. English, that you say we are moving toward a
paperless health care system.

It sounds like what the single-payer folks are saying. What is the
role of capital? And what will be the availability of capital under
a premium cap versus a tax deductibility limited system?

Mr. English. The question of the innovations first. Managed
care, as we operate as CIGNA and as I know all the members of
GHA operate, is a partnership among the provider, the payor and
the patient. The objective is to keep the patient healthy. When they
get ill or are injured our objective is to get them well again in most
cost efficient way. Everyone in the system has the incentive to do
that.

As a consequence, we have seen innovations in our health plans
in the treatment of pediatric asthma patients where we have been
able to demonstrate a significantly more cost-effective way of treat-
ing these patients and also a significantly lower cost of treating
those patients. We have been aole to iaentify in all our plans
women who are high risk pregnancies and eliminate a number of
premature births, again I submit a higher quality result for the pa-
tient and significantly lower cost for the system.

In the area of administrative services, the technology exists
today and is rapidly being rolled out by our companies and others
to give everyone a smart card. With the smart card technology in
the providers's office, we will be able to transmit the data and
funds electronically. These innovations are taking place as we
speak.

And as long as we have a system of free market competition in
which a profit is available, and profits are only earned when you
add value — the capital will be there to fund these innovations. (Cap-
ital will also be available to fund the restructuring of the system.
It is essential that there be the opportunity to operate in a free
market. We can not be saddled with price controls or premium
caps.

Mr. Holland. I might comment on this from the standpoint of
the insurance industry. The National Association of Insurance
Commissioners is currently in the process of establishing minimum
capital requirements that we have to hold with respect to all the
risks we take.

Mrs. Johnson of Connecticut. Excuse me. Do those capital re-
quirements apply to self-insured companies as well?

Mr. RoLlv\NJ). No, I am just talking about what the insurance
company has to hold against the risks that it insures. This
wouldn't have relevance to a self-insured employer.

Those minimum capital requirements, I believe, go into effect the
first of the year. They will apply to health insurance, so they will
define a certain amount of capital we have to hold behind the risks
we take. That means our shareholders put up that capital.

In order to justify being in the health insurance business, we
have to earn for them at least what they view as their cost to cap-
ital. In our view, that means we have to earn over a period of time
something in excess of 15 percent per year on the capital that we
invest in this business.

That is what we have to earn in order to be able to attract cap-
ital to it, because we have other options that we can use for our
capital. In addition, this business is becoming much more informa-
tion processing sensitive. That requires the establishment of fairly
complex computer and administrative systems, all of which require
investments upfront that are recovered over time out of the busi-
ness you do.

That is just an additional capital contribution that we have to
make to this business.

So as we move more to managed care and more to recognizing
the risks that are involved in that business, it has required us to
put up more capital and therefore be more sensitive to our ability
to earn on it.

Ms. Lehnhard. An example of why capital is so important, back
in the old days when we first started looking at how to control
costs, we focused on price and we went out and negotiated with
physicians all over the country, at significant cost to the plans. I
think about 80 percent of physicians entered into contracts with us
to pay reasonable and customary charges in our private business.

Then we entered the next phase of capital investment to look at
physician utilization patterns. We began to look at how they use
services in their offices.

In the last 18 months, we entered the third phase, making major
investments, to look at physician total resource use both in their
office and in other settings. For example, just three plans have in-
vested millions of dollars to develop powerful, new physician
profiling tools.

In assessing total resource use, you not only look at the office,
you look at what the doctors order in the lab, how they use the hos-
pital, how they use the pharmacy. These other service providers
are entities that are completely independent from the physician
and it is an enormous task with enormous costs to pull all that in-
formation back together — adjust for difference in risk of the patient
population — for example you don't want to penalize a physician
that treats AIDS patients — and begin to track a given physician's
utilization pattern. What we have been able to do with that data,
that information on total resource use, is find physicians that use
resources prudently.

For example, just on normal deliveries we found a 300 percent
difference in total resource use, just in normal deliveries. We have
begun to look at overall quality including efficiency.

We have dropped people out of our networks because of early
quality indicators. But the next big investment will be to look at
quality while working with those physicians. Once we put these
physicians in a network, we generally leave them alone. We mon-
itor them, but we don't hassle them.

What we have found is that other physicians in the community
are interested in finding out what those physicians are doing to es-
tablish them to get into the network. This is what I am afraid GAO
won't get to. It is how physicians use resources that is important.

It is not the price. In fact we are willing to pay more for a proce-
dure if they have efficient use of total resources. That is why I
worry about the level of capitalization in the Medicare program; be-
cause all they have done is focus on price and not utilization pat-
terns.

Ms. Ignagni. Mrs. Johnson, I think your question is very ger-
mane to the debate and it is one that is rarely asked, and it is
going to be essential as we think about developing new capacity
and expanding the delivery systems that we have now. Let me try
to distinguish what I think we have in the managed care world
versus the fee-for-service world, because it is very relevant to your

capital question and my response builds on something Mr. English
stated.

In the HMO world we have coordinated systems of care, two
things that are very important, the coordination part and systems
part, so they have all the internal review procedures that are nec-
essary to feed back information about quality, emphasize preven-
tion, go out and remind people that it is time for mammograms, go
out and remind people that it is time to bring your children in, re-
mind people over 65 that they need to get flu shots.

The investment is very much on the front end, but it is a consid-
erable investment. We are the only delivery systems that are orga-
nized in a way to provide efficient and effective care. The base is
very lean.

There isn't the fat that the President talks about in the svstem
as exists in the fee-for-service system. I think when you deal with
the notion of premium caps and you pose the question about what
will be the capital implications, in delivery systems that are run-
ning in a very lean and efficient way that implication or that effect
could be considerable and we are worried about that, which is why
we want to raise the issue early enough so we can offer some help-
ful suggestions.

Just the reserve issues and the holding of capital as you expand
capacity are very considerable, and that is a matter that we
haven't considered much in the current debate, and we need to.

Mrs. Johnson of Connecticut. Thank you. I appreciate your an-
swers.

What I hear you saying is that, though investing capital, you
have been able to look at issues that we call outcomes research,
move that further into total resource use, look at the very kinds of
things government has said we ought to be looking at, but that
government has made a very limited investment in itself, and in
its own systems has made practically no investment.

I think it is significant that in spite of the fact that you have to
make a return to your investors on their capital investment, you
are actually cutting costs the right way by improving quality more
aggressively than the government is.

We have in the VA system, specifically where we have absolutely
total control, and we could have done the kind of investing that you
have been doing. We cut costs by excluding by law groups of veter-
ans from access to that system. In the VA hospital in a town adja-
cent to my district, we have controlled costs by reducing services
to the extent where if you live in Connecticut and you need a hear-
ing test, you have to go to New York City.

So I think it is very important for people watching this hearing
to understand that change is going to require capital investment;
that change brought about by government has not involved capital
investment to any significant degree, and instead by price fixing
and capping budgets has reduced access and affected quality.

I think this is an aspect of this issue that we have to investigate
in far greater depth if we are going to come to the right conclusion.

I also would like to thank Mr. Holland for his comments about
what it is going to do to the industry, because once you do under
the administration's plan, you force all the self-insured people to go
into health alliance programs. There will be a sucking sound that

100

we will hear very clearly that will affect jobs in the private sector
because it will move capital from private sector investments into
being set aside capital in the insured industry.

Chairman Stark. That is tomorrow. Mr. Levin.

Mr. Lp:vin. Mr. Holland, I am not clear on the association's posi-
tion on alliances. You talk about competition and the alliances con-
trolling who would compete and who would not. You suggest that
this does not seem consistent with the goal of consumer choice or
the goal of competition.

So clarify, if you would, on what basis, if we have alliances, do
you think others should be able to compete?

Mr. RoMANi). As our testimony says, we believe there may be
some merit in the alliances so we don't oppose them altogether. But
we believe they should compete in the marketplace along with
other forms of health care delivery. This would involve competition
by insurance companies, other health plans, HMOs, a whole vari-
ety of other ways of delivering health care to individuals.

And we believe that the alliances are as good as some people
think they are, that they will win out in the marketplace. So we
don't believe that the Congress should dictate this by legislation.

Mr. Levin. Let me press you, if I might, because I think we all
need to go beyond the most appealing rhetoric and try to get to the
heart of the matter. Let's assume, in theory, you are correct. On
what basis would those outside the alliances compete; for example,
in terms of risk selection would they be able to do any of that?

Mr. RoLl.ANi). No. Outside the health alliances they would have
to compete on exactly the same basis as the alliance.

Mr. Lkvin. So that means there would be strict community rat-
ing, with no regard for whether people smoke or their age or any-
thing else.

Mr. RoLLANi). Whatever rules apply for the alliance. Now, we
have some problems with absolutely flat community rating, but if
that were the outcome of this legislation, and those rules applied
to the alliance, they would apply outside the alliance as well.

Mr. Lkvin. So

Chairman Stark. Would the gentleman yield?

Are you talking about accountable health plans within the alli-
ance? Because alliances, in my understanding, don't do anything.
They have plans.

Mr. RoLi^Ni). That is correct.

Chairman Stark. We are talking about the plans in the alliance.

Ms. Lkhnhari). They could be both. You could have a health
plan that is both an option in the alliance and an option outside
the alliance.

Mr. RoLLANi). But competition outside the alliance would be on
exactly the same basis as competition inside the alliance, totally
level playingfield.

Mr. Lkvin. Well, let me ask you this — there would be no so-called
cherry picking, no skimming, et cetera?

Mr. RoLiv\Ni). Correct.

Mr. Lkvin. What would be the economic consequences, do you
think, for most of the members of the association if they could do
no selecting of risk whatsoever and have to compete with the much
^^^4arger entities?

101

Mr. RoLLANi). We are willing to take our chances in that envi-
ronment. In fact, our industry has already advocated a lot of the
reforms in underwriting and pricing and so forth that you are talk-
ing about. We particularly believe in an environment where every-
body has to obtain coverage, that there would be an ability to get
a spread of risk, so we are willing to take our chances in that envi-
ronment and compete against the alliances. We think that plans
outside the alliance could possibly compete on the basis of customer
service and on other things that could make them a more
attractive

Mr. Lkvin. What you are saying is that everybody who meets
standards should be within an alliance?

Mr. RoLi^Ni). No.

Mr. Lkvin. Why not? What is the difference?

Ms. Lkhnhaiji). Everyone should meet the same standards. Say
there are 12 insurance companies in a State, one alliance. All
12

Mr. Lkvin. I am still not quite sure. I think it is often fuzzy be-
cause the association sometimes attacks community rating, and the
message isn't clear whether you want the present situation to con-
tinue, where there can be any form of risk selection by companies
or not.

Mr. RoLl^Nl). Our association is on record firmly as supporting
substantial reform in the insurance system, doing away with cher-
ry picking, limiting pricing, moving toward community rating.

Mr. Lkvin. Toward or

Mr. RoLLANl). Well, we have some problems with total absolute
pure community rating.

Mr. Lkvin. So what would be the difference — and I will finish,
my time is up — between the companies with whom business was
placed by the alliance

Mr. ROLIJVNI). None. None.

Mr. Lkvin. So, except for where the check goes originally, you are
saying there is really no difference among companies inside and
outside of the alliance?

Ms. LKHNHAiii). Mr. Levin, one of the big reasons to try the alli-
ance, to have the voluntary alliance, is that is what supports indi-
vidual selection of coverage. All of the health plans out of the alli-
ance would be selected by employer choice. Employers who join the
alliance would say to their 100 employees, all right, I am not going
to choose your coverage anymore, each of you make 100 individual
choices, so it is an administrative framework to support individual
choice.

Mr. Romano. And we are concerned that with an environment
of mandatory alliances that ultimately the market will become sig-
nificantly constrained, there will be far fewer competitors; competi-
tion will be substantially reduced, particularly in the long run than
under an environment where the alliance can function with health
plans within it, but also other providers of health care coverage
could function outside and could compete with the alliance. We
think that creates an environment where far more competition
takes place, and we think that the more competition will be a bene-
ficial factor in controlling costs and making the whole system more
efficient.

102

Mr. Lkvin. ok. Thank you.

Chairman Stark. Mr. McCrery.

Mr. McCRKitY. Thank you, Mr. Chairman. To the panel I apolo-
gize I wasn't here to hear your testimony, so I won't ask you spe-
cific questions regarding your testimony, but as long as I have such
a knowledgeable group here, I would like to ask your help in ex-
plaining to me how the Clinton plan will work. Let me preface this,
restating what I understand to be the goals of the Clinton plan, by
the year 2000 they are going to save $124 billion in the Medicare
program, and about $114 billion in the Medicaid program; they are
going to expand the universe of insured people to everybody, so
that everybody is going to have insurance, and thereby, I would
think create more demand on the system. They are also going to
have a tobacco tax that will generate $110 billion or so.

Can you all explain to me how you understand all that is going
to be achieved?

Is there really that much waste, fraud, and abuse in the system?

Mr. English. I don't believe, Congressman, that there is nearly
enough waste, fraud, and abuse to pay for all of that. I think we
have overestimated the amount of Medicare and Medicaid savings.
I think we have underestimated the increased utilization. I would
predict that if this plan were enacted as it appeared in the prelimi-
nary draft that the consequences will be the following: the price
controls will be invoked. They will be invoked from the very begin-
ning.

As a consequence of that, quality will deteriorate, lines will form,
treatments which are readily available today will not be available.
Ultimately there will also be cost overrun and you will be forced
either to increase the deficit, cut other programs or raise taxes.

Mr. Rowland. I would support that totally. From what I have
seen in the press about the numbers, it is hard for me to believe
they are realistic in any way, shape or form. My personal view is
that if a system like this is put in place, that eventually the Con-
gress will have to face up to some kind of broad-based tax to pay
for it. It will be a very difficult decision. You know that better than
I do, but I think the whole issue of cost and savings and so forth
has just got to be dealt with more seriously than it has up to this
point.

Ms. Lkhnhard. I think there is also a subtle, until you under-
stand it, then not so subtle form of financing that a lot of people
haven't focused on. It has to do with the way the alliance is struc-
tured.

Let me give you three examples. Think of the alliance as a big
pot of money. Medicaid eligibles are going to come in at less than
a dollar, in proportionate premium dollars. Right now you think
about States paying $10 a visit for Medicaid, well below the market
rate. We are going to turn around and pay market rates for Medic-
aid, so States aren't going to be able to afford to pay the full cost
of the premium. That shortfall will get subsidized throughout the
alliance.

Part-time workers will have part of their premium paid but not
all of it paid. That shortfall also will get subsidized through the al-
liance. There is also a provision that insurance companies can't

103

drop people because they don't pay their premium. That again will
get subsidized through the alliance.

This is a very important strategy to finance universal coverage.
It will be paid for by swirling all of the money around in the alli-
ance and asking everybody to share in the cost. It is a huge source
of cross subsidies that I don't think, people have focused on yet.

The other way they have made this more affordable is by capping
premiums at CPI. When we start to cover people that have never
had health care services, we don't know what is going to happen
to utilization. We currently don't know how much to cut back for
uncompensated care. I think it is a big guess to know whether you
can meet CPI or not. We have a feeling it is much above that, given
the pent-up demand that we are facing.

Mr. McCrery. Miss Ignagni?

Ms. Ignagni. Well, I think that many of the assumptions in the
Clinton plan with respect to financing are keyed to the premium
caps, and if the decision by Congress is to have premium caps that,
in fact, may generate some real concerns with respect to quality
and adequacy of meeting the needs of a variety of consumers, then
I think that a number of the assumptions will have to be looked
at again.

Mr. McCrery. Well, I hear you saying basically that you don't
understand either how the Clinton plan is going to achieve the sav-
ings. I left out that we are also going to cut the deficit $91 billion
while we are doing all this. So I hear you saying that you don't un-
derstand, either, how exactly the Clinton numbers are going to
work. Unless we have rationing of health care, much as we are
doing now in the Medicare and Medicaid programs, we are going
to be doing system wide basically, crunching down artificially on the
costs, not doing anything about the demand or the supply, and so
what you have to do is artificially crunch down on the demand, and
that is cutting out services or the only other way to make it work
is to come up with some other broad-based tax to finance the costs
of this program. Is that a fair summary?

Ms. Lehnhard. I would like to followup on what I said and say
something much more positive, after having said something nega-
tive. We are very supportive of the approach in President Clinton's
plan, again of insurance reform and eliminating risk selection,
which will lead to cost containment based on managing costs.
There is a very strong emphasis in his proposal on creating what
we think is the most effective way to control costs not through gov-
ernment rationing, but by getting people in networks where physi-
cians make decisions about how you spend scarce resources. We are
very supportive of the managed care approach, and that is a cost
containment initiative in our view, a very strong one.

Ms. Ignagni. I think following up on that there is a very strong
emphasis on fully supporting the President's proposal on preven-
tion in the front end, getting people in early. That is going to be
the key to the long-term effectiveness of any national health care
strategy that is ultimately adopted.

Mr. Rolland. We would also suggest there are opportunities for
savings. We believe administrative costs can be brought down.

That is already in the process. We also believe there is oppor-
tunity for saving and real malpractice reform. We don't see th^t yet

104

in the proposals and I would personally like to see it go farther,
so there are some opportunities for cost saving, but I think not
clearly to the extent that has been advertised so far.

Mr. Lkvin [presiding]. All right, I think the gentleman's time is
up if that is OK.

Anyone else want to inquire?

Mr. Grandy.

Mr. Grandy. Thank you, Mr. Chairman. I was not able to hear
the panel's testimony, but Mr. Rowland, you and I did discuss
briefly prior to the beginning of the hearing the whole question of
thresholds, employee thresholds and mandatory versus voluntary
purchasing cooperatives. HIAA, I know, is on record as favoring a
voluntary arrangement.

Mr. Roi>iANi). Yes.

Mr. Granhy. The President, as you know, has a mandatory
threshold of 5,000. The bill we introduced yesterday has 100. Mr.
Chafee's bill has a voluntary threshold, but with a very heavy ham-
mer of community rating for everything outside that threshold, so
in a sense I tend to view that as a back-door mandate.

Just so that you know, and we can discuss this on the record, one
of the reasons that our alliance of Republicans and Democrats did
not opt for a voluntary threshold when we introduced the bill is be-
cause we could not find a suitable risk readjustment mechanism
that would allow for some of the selection problems, risk adjust-
ment problems, and I am curious to get your views as to how that
might be incorporated if we were to change in our bill a mandatory
100 employee threshold to voluntary. What is the proper risk read-
justment mechanism to make that work?

And the second question I would like to ask is do you generally
agree that if there is to be a threshold, it should be around 100 em-
ployees?

Mr. RoiJ^Ni). On the first issue of the risk adjuster, it is difficult
for me to sit here now and tell you how I would do that. Certainly
the risk adjuster is an issue that relates to even in a mandatory
HIPC environment, I believe. We would like to do some work and
help you with that. We would just ask you to let us consider that
and get back to you.

Mr. Grandy. I assume that you are not fully embracing John
Chafee's solution, either, which would be voluntary but with com-
munity rating as the sort of Damocles that falls

Mr. RoiJ>AND. Our view is that the alliances should be manda-
tory and that competition in and out of the alliance should be on
the same basis. There should not be an adverse effect on plans that
compete outside the alliance.

Mr. Grandy. But you don't have — were you going to add some-
thing here?

Ms. Lkhnhard. I would add that we have done a lot of work on
risk adjusters, we have locked at the classic ones where you look
at the health status of the individual, his or her medical condition,
and all of that — which accounts for far less than half of the vari-
ation in cost. We have also looked at the sort of gross adjusters
that States are using on a more global basis. I would share that
with you, but we are still not done with our analysis. And that is
one of the reasons we think you can't jump in to individual selec-

105

tion for a whole segment of the market; you have to go the vol-
untary purchasing route. That greatly reduces your need for an ef-
fective risk adjuster.

Mr. Grandy. What about the second part of the question?

Mr. ROLI^ND. The second one is a very difficult one to answer.
Our position is that they should be voluntary, that there should not
be any mandatory aspect of this.

Mr. Grandy. So you wouldn't cap the number of employees at
any particular level then?

Mr. RoMj\Ni). We would not cap it at any particular level.

Mr. Grandy. But then don't you run the risk of seeing small
groups self-insuring into programs that probably wouldn't be actu-
arially sound? My concern is that if you start allowing employees,
employers with like 25 employees to self-insure, do you really have
an actuarially sound health care policy if there is a big claim?

Ms. Lkhnhari). If you say that small group is subject to the
same rules as everybody else in the market, that they have to take
everyone, then you have an alliance with open enrollment and it
is subject to all the other rules. We are saying you can't have self-
funded groups that don't let people in. That is where you are going
to get into trouble.

Mr. Grandy. But couldn't it conceivably happen that, given the
kind of workplace you would be self-insuring, you get a group of
people that might be young, healthy, males and in so doing kind
of creating a privileged class by self-insuring as opposed to not put-
ting them into a larger pooling cooperative and having them mix
their low risk with some high risk population that would be in
these larger cooperatives?

Ms. Lkhnhai^d. We are saying that it should be a prohibited,
that you shouldn't allow 12 groups that have young health people
join together. They don't like the fact that there is community rat-
ing out there, so they are going to set up their own association.
They know they are young and healthy, and they are going to pull
out their good risk, so the rest of the pool deteriorates. We say that
is the very sort of thing that has to stop or you are not going to
achieve any of your objectives of comnmnity rating.

Mr. Grandy. Your contention is you don't need a mandatory re-
quirement with a pooling threshold of employees to get that. You
can get that through voluntary pooling arrangements and laws
against adverse selection.

Mr. Roli>and. Health plans that operate outside the alliance
have to follow the same rules as those inside the alliance.

Ms. Lkhnharix Let me give you one example that might help.
Suppose you have an insurance company, it competes outside the
alliance and it has a community rate of $100. It also says I am
going to do business with the alliance because that is where em-
ployers who want individual choice for their employees have to go,
but I am also going to offer them my community rate of $100, so
they are offering it in both settings. But they have chosen to par-
ticipate and compete both in the alliance and outside of it.

Mr. Grandy. OK. Well, let me just conclude, Mr. Chairman, by
saying if there is a way that you can come up with a workable,
practical, understandable risk readjustment mechanism, I am sure

106

our group will be willing to consider it, so we look forward to hear-
ing from you in the future.

Mr. Holland. We would like to work with you on that.

Mr. Grandy. Thank you, Mr. Chairman.

Chairman Stark [presiding]. I am sorry I was out of the room
at your questioning, but I gather you just dealt with the risk ad-
justment issue and whether it exists in reality.

Mr. Grandy. Not directly to that, Mr. Chairman. I was iust ask-
ing Mr. Holland if there is such a thing as a workable risk adjust-
ment mechanism to allow voluntary as opposed to mandatory pool-
ing arrangements. The belief of the panel, I believe, is there is,
they just don't quite have it yet. I don't want to misstate anything
there, but that is essentially what I have heard publicly and pri-
vately.

Mr. ROLIWND. We certainly would be willing to work with you.
We are eager to work with you.

Chairman Stark. Let me just restate that a different way be-
cause this is rather technical. It is my understanding that there
does not now exist a method for prospective risk adjustment that
gets much closer, sav, than 20 percent of the way there. Do any of
you feel differently about that?

Ms. Lehnhard. About 20, 30 percent.

Ms. IGNAGNL That is correct.

Chairman Stark. Now, do any of you have a secret program that
you are about to spring on us that tells us that you are going to
get us to 80 or 90 percent?

Ms. iGNAGNL No.

Chairman Stark. So if we are counting on risk adjustment for
any serious cost adjusting, we are a little ahead of ourselves, is
that a fair statement?

Ms. IGNAGNL This is where you may, Mr. Chairman, decide to
proceed by trying alliances in the small group market to develop
a track record, a body of experience, and then make some judgment
from which we can generalize.

Chairman Stark. I appreciate vour suggestion, but I just want
to deal with that because it does become very key to making some
of these numbers come together, and I don't mean to prejudice any-
body's program, it is in several, and I am unable to, in all serious-
ness, nail that down either in literature searches or in talking to
the actuaries yesterday.

There is not a very high level of confidence that we know enough
right now to make that work. I just wanted to also finish up. I do
hear about the bureaucracy a lot, and I am just going to suggest
that our bureaucracy on Medicare is about one for every 10,000
beneficiaries, and I am going to submit that there is not an insur-
ance company in the country, if not the world, that comes close to
Medicare's efficiency. And while the bureaucracy, I can make no
empirical statements about the quality of the bureaucracy or the
results, but I just think it is an incorrect statement. Everybody
talks about this big Federal bureaucracy.

It is a 35, possibly 4,000, couple hundred for Medicaid, but we
really don't run Medicaid. Am I seriously misstating that?

Mr. English, you are not near one. You have a different sort of
problem in that we hire out, we privatize our routine clerical work,

107

mostly to Blue Cross, so if anybody screws up it is Blue Cross, not
us. As a matter of fact, that is where most of the complaints are
that Mrs. Johnson talks about, the intermediaries louse it up, and
make mistakes.

It is a thankless, routine nickel-and-dime business for the most
part, but the fact that when people think of bureaucracy, they
think of government employees over here on 3d and C Streets. We
don't have many, and I would submit that we don't have as many,
'^bureaucrats" at the policy level and the administrative level that
Blue Cross of California has for 20 million people in California.

I know you don't serve them all, but, yes, you do, and is there
anybody who feels that they are much better offer than we are in
numbers?

Mr. English. I think the administration of Medicare, because
much of it is contracted to the private sector on a competitive basis
and we compete for that business, has that efficiency going for it.
It also has the fact that there is indeed a standard benefit plan
which we would advocate.

Chairman Stark. No question.

Mr. English. The problem I have is when the government
tries

Chairman Stark. You want a board of directors, that is all.

Mr. English. When the government tries to set a centrally-
planned budget and tries to enforce price controls, it will find it
necessary to evoke enormous amounts of bureaucracy.

Chairman Stark. But we do that in Medicare now. We set the
prices.

Actually, I am going to tell you how well Mr. Todd's group have
done with us. They have done astoundingly well — that is the sub-
ject of my next introduction — with a private-public partnership.

Mr. English. There is nothing in my experience that would lead
me to conclude that if we move to a single-payer system regulated
entirely by the government that there will be less bureaucracy.

Ms. Ignagni. Mr. Chairman, I would answer your question in a
slightly different way. If you raise the issue of whether Medicare
should be the standard, I think then we really need to examine it.
Medicare is not what many of us would call state of the art in
terms of responding to consumers' interests and demands. The
quality assurance mechanisms, the data, the feedback.

Chairman Stark. We put a lot more people away than the insur-
ance comissioners in the States. We have a far better record of con-
victions and prosecutions.

The private insurance companies would love to have us tighten
the laws and be able to do as well. You know not of what you
speak.

Ms. Ignagni. I think, sir, that you perhaps or perhaps I haven't
been as clear in my point as I would like. It is the internal quality
assurance mechanisms in some of the plans that we represent ver-
sus what is not yet happening in Medicare that I think all of us
would like to incorporate into the Medicare model.

That will, if we move in that direction, by design raise adminis-
trative costs, and that shouldn't be viewed as a bad thing nec-
essarily.

Chairman Stark. OK. Thank you all.

108

If there are no further inquiries on the part of the members, I
would thank the panel very much. I wish you would have been
more gracious in accepting the challenge to compete with Medicare,
but we will try that another time.

Our next panel consists of Dick Davidson, the president of the
American Hospital Association; Dr. James Todd, the executive vice
president of the American Medical Association; and the American
Nurses Association represented by Gwendolyn Johnson, who is a
member of the board of directors.

I don't know whether anybody else has these numbers yet, but
we have all heard a lot of contention about the reimbursement of
physicians under Medicare, something that Dr. Todd, opposed vig-
orously but graciously worked with us to make it work after we
prevailed, but the answer is that in the first half of this year, as
probably you all know, we set targets.

I hate to even suggest global budgets, but we set targets. We set
rates as a result of that, but that is about all we do, and we hope
that the docs will meet the target. If they don't, we say we will ad-
just the target.

Well, they did. The nonsurgical services, that is other than physi-
cians, came in about 6 percent under their target. The surgeons
must have all gone on vacation, they came in near 15 percent
under their target.

Under the rules, this entitles them to a bonus, as it were. Now,
this is only the first half of the year, and I am advised that this
could change because of the slowness in billing and the rest, but
I say it to suggest that there is indeed a structure by which we can
bargain with providers and establish rates and maybe accomplish
some cost savings or some reduction in the rate of inflation which
is really all we are talking about here.

We do this with the hospitals. I know that last year the rate of
increase in hospital reimbursement was about half of what it was
in Medicare versus the private reimbursement. Again, some of this
may very well have been shifted to other providers, either inten-
tionally or unintentionally, but those providers who participated
are to be congratulated and encouraged to keep it up.

We on our side will try to do our part by making adjustments
where they seem to be needed and there are a lot, I might add, so
I would like to start with that introduction to all of you.

The nurses are not yet generally reimbursed by fee-for-service,
but they are trying, and so that

Mr. Cardin. Mr. Chairman, may I ask you to yield?

Chairman Stark. I would be happy to.

Mr. Cardin. You gave me a perfect introduction. Maryland, with
our system, was one-half the national average for its hospital cost
increase this year, so we are even doing better as far as keeping
the costs down, in large measure due to the services we had in
Maryland of Mr. Davidson. So I can't let this opportunity pass
without welcoming Dick to the committee.

This committee has heard more than they want to about the
Maryland hospital rate reimbursement system. I know the chair-
man is a little tired of that being raised.

109

Chairman STARK, Oh, no, I remind Mr. Davidson of it all the
time. He tries to ignore it, but I am glad you are reminding him
of his roots because it is very important.

Mr. Cardin. I just want to thank Mr. Davidson for what he did
in Maryland and congratulate him for his leadership at the na-
tional level with the Hospital Association.

Chairman Stark. With that, we will let him lead off. Welcome
to the committee. Go ahead.

STATEMENT OF DICK DAVTOSON, PRESmENT, AMERICAN
HOSPITAL ASSOCIATION

Mr. Davidson. Thank you, Mr. Chairman, and Mr. Cardin.

I am Dick Davidson, president of the American Hospital Associa-
tion. We are the voluntary alliance of more than 5,000 hospitals
and health care institutions across America. We represent virtually
all kinds, private, not for profit, religious, governmental. Veterans
Administration hospitals, you name them. They are a part of our
umbrella organization; so when we speak to you today, we speak
on behalf of a diverse group of hospitals throughout America who
have strong commitments to moving toward reform.

And we at the outset want to oner praise to the President and
the First Lady for having set the tone for the consideration of re-
form. And I know, Mr. Chairman, as an advocate of reform for
some time, you have got to be excited about the opportunity that
this presents this committee and the Congress to really consider
changing things to make them better than they are today, and it
seems to me that is what we all ought to be committed to.

We will have differences of opinion, but we are going to find
some middle ground, and we have got to be reminded that our
whole initiative is to better seT^e the American public. I would like
to share with you some ideas about the Clinton proposal, and as
you can guess, there are a lot of things in it that we like, and there
are a lot of things in it that we have some concerns about. We will
come back to the details.

First, the President's plan has a lot of common ground with what
the hospitals see as a vision for the future. We have called for im-
proving the health of people in our communities.

We have called for universal access to health insurance. We have
called for a more integrated health delivery system. We have called
for economic discipline in the system — to get control of growth —
that makes sense; and we have called for greater measures of pub-
lic accountability as well as calling for malpractice reform and anti-
trust guidance.

Second, our two highest priorities, as we see them, are first, that
we must have universal access in order to really achieve the objec-
tives of honest-to-goodness reform, to do better for the American
public. We see that as a moral imperative; and without that, you
can't get there from here. I want to say that right at the outset.

Our second priority is that the focus needs to be on changing the
delivery system, as you have heard a lot of talk about today. The
one that we have today is broken, it is fragmented, disconnected,
and it really doesn't serve us well. We can do a lot better.

Finally, as with probably any comprehensive health reform plan
you can guess that we see some problems and would like to share

some observations about some of the bumps in the road that we
foresee.

But let me accentuate the positive first — how the President's
plan fits our vision. We stand squarely behind the President's in-
sistence on achieving universal access to insurance through the
workplace. We think it is the only practical way to get there, and
we will have a lot of debate along those lines, but we think it is
the only way to achieve the objective.

The President's plan also begins to create a new environment for
health care delivery for hospitals and doctors and other providers,
and we think that is essential, and we have strong feelings about
those incentives. The accountable health plans that the President
is calling for are close kin to our proposed community care net-
works.

We would like them to be a little bit closer, and we think we can
build on their proposal so that all of us in health care can con-
centrate on what it is that we do best; and what we do best, and
we haven't really been tested, is to help keep people healthy and
to take care of them when they are sick, community by community,
across the Nation.

Now, the problems and our proposed solutions. First, Medicare
spending growth is arbitrarily capped so that $124 billion is
squeezed out by the year 2000. These changes are not intended to
fix what is wrong with the Medicare program.

These changes in payments to hospitals and doctors are made
solely for the purpose of financing additional benefits, and of course
we are for expansion of additional benefits, but not at the expense
of reduced payment to hospitals who are expected to treat the el-
derly. This, coupled with the fact that services for the Medicare
population in the President's plan continue to be paid for on a per
admission or per visit basis, amounts in our opinion to business as
usual.

Medicare's payment system is broken. It is full of incentives for
volume growth, which contributes to rising costs, and this is what
we have got to change in the years ahead in our opinion. Also, the
overall plan reduces the deficit by $91 billion.

We say take those dollars to expand benefits and use those sav-
ings to avoid future arbitrary cuts, and for a truly reformed sys-
tem, include the Medicare population. We don't think you can leave
Medicare out.

About one-third of the patients that we treat, and think about
that in rural communities, are senior citizens. We can't reform de-
livery if, in fact, we have two kinds of payment mechanisms treat-
ing two classes of patients differently, so we have got to have Medi-
care in.

In addition to the Medicare spending cap is the effort to cap
spending on the private side.

We agree on the need to slow health spending growth. There is
no debate about that, but by establishing a rigid formula to slow
growth, the Clinton plan puts the system on what we would call
cruise control, kind of takes its hands off the steering wheel and
hopes for the best. Our view, instead, is that any attempt to limit
spending must include a process to match personal health needs

Ill

with available resources in an open and public way where there is
honest and public debate about how we allocate these things.

In our view, that is the job of the proposed independent commis-
sion. That is the place to begin to have that debate with the sup-
port from the Congress in the debate. We don't think you need a
system of fixed formulas. It won't work, and we are unalterably op-
posed to those kinds of governmental price controls. In our view,
health care costs can only be controlled if we change the way we
operate at the community level.

The Clinton plan does call for a capitated payment arrangement
that will in essence bring about cooperation and collaboration at
the community level and keep people healthy, and that is the direc-
tion that we ought to go. With regard to collaboration, we think
that some of the areas of the President's accountable health plans
need to be looked at very carefully.

We don't want them to become fly-by-night insurance mecha-
nisms run by people in tall buildings in New York with computers
and discount contracts. We think that they have got to be plans
that are locally controlled and locally coordinated and are account-
able to local communities.

In closing, Mr. Chairman, these are the key issues for America's
hospitals. We have a lot of other ideas on the President's plan.

We will stop at this point and just say to you, we pledge our sup-
port in being constructive players for reform. We don't believe that
we can maintain the status quo, not only because we don't want
to.

We think there is a better place to get to and we are calling for
more change in the behavior of hospitals and doctors than perhaps
any other organization in the United States. We feel very proud of
that, so we pledge to you our support.

[The prepared statement follows:]

112

Capitol PUce. Building »3
50 F Street. N W.
Suite 1100

Washington, DC 20001
Telephone 202 638- 1100
FAX NO 202 625-2345

Statement

of the

American Hospital Association

before the

Subcommittee on Health

of the

Committee on Nays and Means

Ttalted States House of Representatives

President Clinton's Health Care Reform Proposal

October 7, 1993

Good morning. I am Dick Davidson, President of the American
Hospital Association, representing 5,000 hospitals and health
care organizations across America. It is a pleasure to be here
this morning in the cause of moving health care reform forward.
Members of this subcommittee have been true pioneers in the
effort to extend and improve health coverage for the nation, and
I know you share the American Hospital Association's excitement
eibout the real opportunity for achieving that goal that the
current environment provides us .

AHA salutes President Clinton and the First Lady for their
significant work in nurturing the current reform climate.
America's hospitals, through AHA, have worked for more than two
years to shape our own blueprint for health care reform: we are
very pleased that the President's plan shares many of our
building blocks. In a nutshell, AHA's reform objectives
include:

1. Universal access in a reasonable time period financed
in a pluralistic manner;

2. Redeveloping health care delivery into an integrated
and coordinated system able to address the needs of the
population;

3. Economic discipline based on clear incentives rather
than mi cr ©management;

4. Balancing promised benefits with adequate financing;

5. Piiblic accountability for the clinical effectiveness
and economic efficiency of health plans;

6. Antitrust and malpractice reform.

Arg»8 pf Aqr^gmgnt With CUntpn Plan

You will notice that "universal access" is at the top of the
list. We share the President's belief that any reform plan must
move us as quickly as possible to health coverage for all. This
is a non-negotiable item for us, not only because it is the
morally right thing to do, but also because without universal
coverage health care reform simply doesn't work -- without it,
you will still have a system with providers continuing to shift
costs from the uninsured to the privately insured, undermining
our goal of moderating rising health costs.

113

The other basic building block we share with the Clinton proposal
is its boldness in calling for a fundamentally restructured
health care delivery system. In the Clinton proposal, health
plans would offer a guareinteed national benefit package to
consumers, without regard to pre-existing conditions. The plans
would receive a fixed, per-person annual payment, providing the
financial resources for preventive care that our current system
so sorely lacks.

The Clinton proposal's "health plans" provide the structure to
accommodate AHA's own approach to restructuring the delivery
system through community care networks™ -- cooperating groups of
local providers paid on a capitated, or per-person, basis. This
approach provides the economic incentives for providers to work
together, eliminating expensive duplication of services and
technology, and for establishing a seamless system of care that
works better for patients.

We also like the fact that the Clinton proposal establishes a
framework for a national independent commission that would
interpret and update the guaranteed national benefit package to
be offered to consumers. And, we endorse the proposal's movement
toward more clearly spelling out amtitrust guidelines. The
current antitrust climate is murky. Hospitals that wamt to merge
or share technology are sometimes discouraged from doing so out
of fear of running afoul of the Justice Department and
regulators. This chilling effect undermines our shared goal of
achieving greater efficiency in health care delivery.

Suggeste d TmpT-nv« »ment8 In the Clinton Plan

While we have more agreement than disagreement with the Clinton
proposal -- more common ground than battleground -- we would like
to share with you our areas of significant concern, and offer our
view of how these areas can be improved.

Medicare

First, under the Clinton proposal Medicare spending growth is
capped so that $124 billion is squeezed out of the program by the
year 2000. These cheinges are not intended to fix what's wrong
with the Medicare program. They will fund prescription drug and
long-term care benefits for the elderly. We are supportive of
these benefits, but we can't support underpaying hospitals in
order to finance them.

The solution? The Clinton plan calls for using reform savings
and taxes to reduce the deficit by $91 billion. We believe those
savings should be left in the health care reform effort where
they can reduce the need for arbitrary cuts. First of all,
providing universal access to health coverage is going to
increase health spending. This is not the time to be bleeding
resources from the system. Second, the process of reconfiguring
hospitals and other provider services also takes financial
resources. We know from experience that laying out a solid plan
for merging services between two hospitals, or between a hospital
and physician group, can tadce a year or more. Hospitals must
have the resources that allow them to do this - - resources that
could be freed up through the greater efficiencies euid lower
administrative costs that are the bounty of reform. But our fear
is that a too- constrained financial environment at the outset
could prevent reform from getting off the ground.

The infrastructure investments we all endorse in order to reduce
administrative costs -- electronic billing, computerized patient
records, new information systems -- also require front -end
dollars before they can be put in place. Our ability to get
beyond the traditional hospital acute care role that will be
necessary under reform is also jeopardized by excessive spending
reductions. For exair5>le, consumer education, wellness, auad

114

outreach programs -- not funded by the current system -- are
among the most vulneraJsle programs when finances are squeezed.

Global Spending Caps

A similar disconnect of actual needs from resources happens on
the private side in the Clinton proposal, where spending growth
is capped by tying it to the Consumer Price Index (CPI) . But
the CPI has no real link to the actual costs of providing care;
health care has its own set of input costs that aren't reflected
in the CPI - - labor costs that are driven up by health care
personnel shortages and the steeply rising cost of new medical
technology, for example.

We agree on the need to slow health spending growth. But to try
to do it through a rigid formula amounts to putting the system on
cruise control, taking one's hands off the steering wheel, and
hoping for the best. That is not a responsible way to navigate
the uncharted territory of health reform. Why? Because it
doesn't allow us to adjust course to accommodate unforeseen
circumstances. The slowness of the economy in coming out of the
recession, previously unknown crises such as the AIDs epidemic --
all caution that we keep our hands firmly on the steering wheel.
And the way we do that is to match health needs with availeOale
resources in an on -going, open and public way. In our view, that
should be the job of the independent national commission.

Structure of Health Plans

We also have concerns about the structure of the Clinton health
plans. While they have shared characteristics with our vision of
integrating care through community care networks, they are by no
means identical. The health plans must have a better-defined
role set out at the national level, and more accountability built
in at the local level . We have real concerns that as currently
defined they could harbor fly-by-night insurance schemes. The
way to address these concerns is to make sure health plans are
under local governance, are targeted toward meeting local needs,
and have a local accountedjility mechanism.

Conclusion

There are many other aspects of the Clinton plan - - some of which
require further clarification -- that we are currently reviewing.
These include: the size and role of the alliances; the process
for seeking state waivers; payments for the training of
physicians and other allied health professionals; the treatment
of illegal aliens; and the role of providers in underserved
areas, both rural and inner city. We will continue to study
these issues and look forward to working with you to find the
best way to include them in comprehensive reform.

So yes, there is work to be done in examining these issues and
other areas of concern. We need to work together to identify
options and compromises. But it's not an impossible job. We
have been given a strong start by the President and the First
Lady in putting forth a serious reform initiative. Much work has
already been done in Congress as well, including efforts by this
subcommittee. And a spirit of bi-partisanship is emerging.

For those of us who see a broken health care system and want to
fix it, it's a truly exciting time -- even an historic time --
for health policymakers and providers. We sense a rare
opportunity, an opportunity that may not come again for a long
time, to reshape our health care system to make it work better
for all of us.

Hospitals pledge to play a constructive role in that process --
to work hard to support reform elements we believe build the
right foundation, and to find agreement in those areas we now
feel are not solidly grounded. As the American Hospital

115

Association serves in that role, we don't see ourselves as
advocates for the President's plan, the Conservative Democratic
plan, the Senate Repxiblican plan, for business or for labor. We
see ourselves as advocates for the workable, the truly better --
in short, for good public policy.

Legislation that captures these qualities is likely to be drawn
from positions all along the political spectrum. As politicians
skilled in the art of contprcmise , I know you recognize that truth
as well. The Americain Hospital Association looks forward to
working with you to reach our shared goal of better health care
for all Americans.

116

Chairman Stark. Thank you.
Dr. Todd.

STATEMENT OF JAMES S. TODD, M.D., EXECUTIVE VICE
PRESIDENT, AMERICAN MEDICAL ASSOCIATION

Dr. Todd. Thank you, Mr. Chairman, and members of the com-
mittee.

I am Jim Todd, the executive vice president of the American
Medical Association, and we are pleased to be here today to provide
our views on the President's health system reform plan.

We applaud the President, as well as the First Lady, for taking
the first necessary steps in bringing to an end the difficulties that
too many of our patients have in finding affordable adequate health
care coverage. The basic principles of the President's plan mirror
what the AMA has been calling for in its own plan, health access
America, for the last 4 years.

Both plans seek to build on what already works well in health
care; both would make certain that the health care system works
fairly for all Americans, and we also understand the need to
produce a system that is disciplined and can provide a measure of
quality upon which our patients can rely.

Our plans also agree on the need for universal coverage, a na-
tional package of health benefits emphasizing preventive care, a re-
quirement that all employers share in the responsibility of provid-
ing coverage that most employees in America have long enjoyed
while at the same time providing mechanisms to deal with the po-
tential for dislocation among small employers and their employees.

Insurance reforms that will require insurers to insure risk, not
avoid it, a competitive environment where health care costs at all
levels will have to be justified, and pluralism as a means of guar-
anteeing health care quality and access. We are pleased that in the
various discussions we have had with the administration, as it has
crafted this proposal, that many of the suggestions that we offered
were accepted.

In many other respects, however, we do not see the necessary
level of physician participation on behalf of their patients in some
of the most crucial aspects of the President's plan that we have dis-
cussed with them. But we understand that modification is ongoing
and we are encouraged that the President has signaled the willing-
ness to negotiate specifics of the plan.

Yet right now physicians simply have too many questions about
how that plan is going to be implemented, about why the plan's ef-
fort to cut waste in spending does not go far enough in Hmiting li-
ability costs through caps on noneconomic damages and meaningful
limits on attorneys' fees; about why physicians will not be given
adequate exemptions from current antitrust restraints to allow
them to protect their patients' interest in a health care market that
will be dominated by large managed care entities under this plan;
about why strict spending controls are called for when they have
never been shown to work anywhere, with a National Health Board
designed basically to regulate the system when better, more
participatory models for providing guidance to the health care sys-
tem are available; about health alliances that could add yet an-
other level of regulatory authority to the system when all that is

117

needed is an impartial entity that helps organize the way insurers
and small employers come together in the marketplace; about the
intent to nationalize medical education by essentially telling stu-
dents what careers they may pursue, something done nowhere else
in any field in this Nation; and about why a whole new bureauc-
racy of quality oversight will be better than that now existing in
the private sector.

Before physicians can say whether they oppose or support the
President's plan, they need far more detailed answers to these
questions. Other health system reform plans have been and will
continue to be offered from both sides of the aisle.

None are perfect nor should we expect them to be at this junc-
ture, but on balance the President deserves our congratulations for
his unprecedented leadership in making at long last meaningful
comprehensive health system reform a real possibility.

We also congratulate this committee and its chair not only for
past leadership but also for quickly beginning the task of examin-
ing and shaping health system reform. There is still much work to
do, and at the end of this long process when all is said and done,
physicians will judge the acceptability of any health svstem reform
plan on only two criteria: will patients have the freedom to obtain
care from the provider in the facility of their choice and can physi-
cians provide necessary effective and efficient care without undue
restrictions on their clinical judgment?

Our patients deserve positive answers to these questions, and the
American Medical Association promises to work with the adminis-
tration, the Congress, and our patients to see that positive answers
will be achieved.

Thank you.

IThe prepared statement and attachment follow:!

118

STATEMENT

of the

AMERICAN MEDICAL ASSOCIATION

to the

Committee on Ways and Means

Subcommittee on Health

U.S. House of Representatives

Physicians' View of the President's Health Plan

Presented by: James S. Todd, MD

October 7, 1993

Mr. Chair and Members of the Committee:

My name is James S. Todd. MD, Executive Vice President of the American Medical Association

(AMA). Accompanying me is Ross N. Rubin. JD, of the AMA's Division of Federal Legislation.

On behalf of the AMA's 300,000 member physicians, I am pleased and honored to be able
to share with you what I believe many individual physicians would say about the President's
proposal for health system reform if they had this opportunity to be here and talk with you today.

The President's proposal is long awaited. Physicians know the limitations of the current
system. They see the difficulties far too many of Americans have finding affordable, adequate
health care coverage. For the past four years, the AMA has been telling whomever would listen
about the need for comprehensive reform and a way to achieve meaningful change through our
own proposal. Health Access America. Before that, we helped organize an effort of leaders

119

among physicians, a wide range of health care providers, academia, and both federal and state
government to define the difficuhies and solutions needed to address problems in the health care
system - called Health Agenda for the American People - well before the problems of the
health care system captured the public's attention as they have in the last several years.

We have long imderstood that problems with America's health care system had to be
addressed, that the status quo was no longer sufficient. We applaud President Clinton for his
resolve in addressing these problems, in taking the first necessary step to end the status quo.
Likewise, we applaud the First Lady for her leadership in the difficult process of framing the
President's proposal. It is encouraging to physicians that the President has signalled a wdllingness
to negotiate details of the plan as long as such negotiation does not undermine the basic principles
of reform. We look forward to such negotiations as the package proceeds through the Congress.

For these reasons alone, I can confidently say that the Administration, the Congress, the
medical profession and others can move forward into a new era of health system reform.
Building Fairness into What Works

Our confidence that we can accomplish our joint goals is fueled by how much there is in
President Clinton" s proposal that reflects our own plan for health system reform. Most
importantly, we share President Clinton" s intended goal of building on what works well in the
system now, not replacing it or tearing it down. We also recognize that a strong theme in the
President's proposal is enforcing fairness on a system that, for all the world-leading wonders in
medical care it makes readily available to most Americans, does not fairly ensure that all
Americans have access to that same level of care.

120

Every American should have coverage so that the system is available to every American,
and the rules of the system should work the same for everyone. President Clinton's proposal
would make a great leap in ensuring that they will -- by making sure that all employers share in
the responsibility of offering health care coverage that most employees in America have long
enjoyed; by defining at the national level a package of health care benefits including preventive
care that will be available to all Americans; by requiring health insurers to insure risk, not avoid
or limit it; by reconstructing federal tax incentives so that the self-employed are treated the same
as large corporations, and ending federal tax dollar underwriting of health care benefits richer
than the nationally defined benefit package; and by establishing reasonable cost-sharing
requirements that will encourage individuals to assume a level of responsibility for the health care
choices they make. We are also encouraged that the plan recognizes the need for liability reform
to be part of health system reform.

These changes alone would bring about a resolution of many of the difficulties our
patients now experience in the health care system. Even more is needed, though. Unfortunately,
many of the directions taken in the President's proposal beyond these basic principles create in
physicians serious reservations about the effect the proposal, if enacted as it stands today, would
have on the ability of physicians to provide quality health care to their patients.
One Measure: The Physician-Patient Relationship

There is only one measure by which physicians will judge this proposal - how will it
affect the ability of a physician and his or her patient together to make whatever decisions are
necessary about the patient's medical needs. When a physician sits in an examining room with
a patient facing a difficult, often life-threatening moment of decision, the physician needs to

121

know, without doubt, that a decision can be made solely in the best interests of that patient's
health and well-being, nothing else. As the President's proposal stands now, far too much could
come between the physician and patient at that moment of truth, making it difficult to make the
best possible decisions on behalf of patients.

The combination of arbitrary global budgets, premium caps and the need to save dollars
by plans could necessitate many of the same intrusive controls and second guessing of physician
decisions that exist in many of today's tightly controlled insurance plans. Such interference is,
has been, and continues to be inappropriate. It is inappropriate now when insurance companies
arbitrarily second-guess physicians' clinical decisions in utilization review or force physicians to
step out of the examining room to seek preauthorization for necessary care. It is inappropriate
when the threat of liability action forces physicians to order tests that would not be necessary in
a less hostile environment.

Under a new health care system, we must avoid interference that results from decisions
about the availability and quality of health care made from a bureaucratic, centralized place,
distant from the patient's bedside, and disconnected from the needs of a physician's individual
patient. There are many positive aspects of the President's plan that could and should be carried
out with little government involvement, however new levels of bureaucracy are envisioned at the
federal, state, and corporate levels. Physicians wonder what role will be left for them in the new
system.
Federal Interference

At the federal level, a national health board of seven individuals would have sole
responsibility for establishing, administering, and disciplining the system proposed by the

122

President. One of its key responsibilities would be to enforce global budgets on health care
spending. If such budgets were truly targets, meant as a flexible guide established with the help
of physicians to assist in identifying cost difficulties and specific solutions, reflecting changing
demographics and specific health care needs across the population, the AMA could support them.
Instead, the "targets" here are strict spending controls based solely on changes in the Consumer
Price Index and enforced through the cost of insurance premiums, with potential assessments on
providers.

Nowhere in the world, in any kind of system that delivers any service or good to anyone,
have such spending controls ever worked. Their implementation does nothing to control the
demand for services and often times increases that demand. Such controls result in arbitrary
maldistribution of services that often falls far short of meeting consumers" needs. With health
care in the United States, the result will be no different. Treatment plans on how to meet
individual patient needs now made between a physician and a patient in the physician's
examining room could be made instead in Washington, DC. Physicians cannot accept this
limitation. We do not believe our patients will either when beneficial care is not promptly
available. That is not the kind of reform the American people are expecting.

Physicians have the same kinds of concerns about the control the federal government will
be taking over the supply of physicians under the President's proposal. By mandating medical
schools to train 50% of their physicians in primary care and allocating medical residency slots
through new national and regional graduate medical education coimcils, the federal government
will essentially nationalize medical education in this coimtry. While there is a need for more
primary care physicians throughout the nation, the incentives to practice primary care included

123

in the President's plan, along with changes in the health care marketplace that are already
happening, may well be enough to encourage and enable medical students to pursue primary care.
The AMA has advocated for these same incentives for a long time. They should finally be given
an opportunity to work.
State Interference

At the state level, health alliances, as proposed in the President's plan, will only add to
this bureaucratization of the health care system, providing another layer of decision-making which
could undermine the physician-patient relationship. The AMA has watched with interest the
development of the concept of health alliances in the managed competition proposals that have
come before Congress. In a pure managed competition approach, health alliances - or insurance
purchasing cooperatives ~ would act simply as unbiased conduits between health insurance plans
and consumers, acting to organize the market under rules that apply equally to all. There is a
need for such a role to be played to help small businesses organize their purchasing power in the
insurance market. Such a system - the Federal Employee Health Benefit Plan (FEHBP) --
provides health benefits to federal workers, members of Congress, and their dependents. With
little bureaucracy, FEHBP empowers individuals to make rationd insurance purchasing decisions
based on their needs and desires. The American people deserve no less.

President Clinton's proposal for health alliances goes beyond this basic need, however,
giving alliances what will amount to regulatory command and control authority, in concert with
the national board, to enforce premium prices on insurance plans and exclude plans with higher
premiums. Authority also is given to alliances to determine what kinds of health plans would
be allowed to compete by limiting the nimiber of fee-for-service plans under an alliance. This

124

is not competition. We recognize the need to manage competition fairly, but this limitation is
not fair and is not going to promote competition, which is the only way that cost-effectiveness
and quality health care can be guaranteed. An open fee-for-service plan should be available in
every area of the country.

The proposal for health alliances is also problematic in that it requires all employers with
up to 5000 employees to purchase coverage through them. Such a high threshold will give
alliances far too much market power in a state or region, choking off pluralism and competition
in a market. It is truly small employers, those with less than 500 employees, that need
government help in pooling their resources to buy insurance, not employers with thousands of
employees. Government involvement should be limited to where there is a need, allowing
competition to work where it is able. Allowing medium sized employers to maintain their own
plans will provide an appropriate counterbalance to the power of the alliance and will provide
freedom for an expanded number of plans in any particular geographic area.
Corporate Interference

Finally, physicians see the erosion of their professional decision-making role and their
ability to represent the best interests of their patients in the overwhelming preference the plan
gives to what will no doubt become large corporate managed health care entities. The AMA does
not oppose managed care. We understand the current economic pressures that are already
pushing more and more physicians into managed care arrangements. That is competition, for
now. A health care reform plan should not, however, codify that marketplace phenomenon. If
fee-for-service is truly noncompetitive, our patients should make that decision, not the federal
government. Government action should at least be neutral, or, where there is a dominance in a

125

market, should help balance the marketplace to encourage competition.

Instead, we see an overly narrow definition of fee-for-service under a proposal labeled fee-
for-serv'ice that eliminates many of the elements of fee-for-service. Rather than giving physicians
and patients the ability to choose how and where medical care is delivered, and how much the
service should cost, the government will impose a price on services that all physicians choosing
to practice outside large managed care entities will have to accept. It is doubtful whether many
physicians will be able to make this choice outside of already underserved areas of the country
where managed care corporations will not find it cost-effective to go. In a short time, managed
care will have no competition in the marketplace. A physician will have little choice if she or
he cannot agree to managed care decisions that limit her or his ability to meet patient's medical
needs. Such a situation is unacceptable to physicians. The fee-for service option, as proposed
by the President combined with the global budget would limit patient freedom of choice to only
an IPA/HMO type of fee-for service plan.

True fee-for-service. without arbitrary constraints, should be given an opportimity to fully
compete in a new health system. Instead of price controls, a reimbursement system based on the
RBRVS could be created, giving patients an opportunity to compare prices based on physicians"
choices of conversion factors they individually want to apply.

Also needed are greatly expanded protections from anti-trust constraints for physicians to
ban together and organize networks to compete with the accumulation of health care market
power in large corporate entities. Physician organizations like the AMA should be allowed to
represent physicians. Current restraints on such activities are already no longer valid where
individual physicians have little choice but to accept arrangements offered to them.

82-401 - q4

126

Physicians also must be given the opportunity to compete for patients in such markets,
by requiring dominant managed care entities to allow physicians who meet credential
requirements to provide care under a managed care arrangement. Large corporate entities should
not be allowed to freeze otherwise qualified physicians out of providing needed care to their
patients if those patients want to choose that physician.
Financing

Fueling physicians' concern over the President's proposal is the light brush that has ^^'^en
given to financing the plan. The key revenue source offered is a continued federal cutback in
Medicare and Medicaid funding. Not only is this unacceptable to physicians and their patients
who rely on these already underfunded programs, it is doubtful that this can be a reliable revenue
source to fund the e.xpansion of health care access hoped for in the proposal. An increased "sin"
tax on tobacco has been proposed by the President, which the AMA would support. We would
also support increased taxes on alcohol as well as increased cost savings that will come with
administrative savings envisioned in the plan.

With some reservations, the administrative cost savings offered in the plan are laudable
and necessary. But given the bureaucratization of health care at the federal, state, and corporate
level provided in the plan, we see, in fact, greater administrative costs, not less. For example,
the National Board will have numerous sub boards and commissions, such as in quality, benefits,
graduate medical education, that will all need to develop complex rules and regulations. A system
that adds levels of management, not reduces them, can only be more expensive. The absurd
duplication of oversight over the physician-patient relationship physicians now experience under
insurance company control will not lessen under a system dominated by large corporate health

127

care entities; more oversight is only added through the new state and federal superstructure of
control. We simply do not see sufficient administrative cost savings in the President's proposal.

And where there are unnecessary costs in the system in the high cost of liability both in
litigation costs and defensive medicine, the Presidents proposal takes too linle action. To ensure
such high costs do not continue under a new system, initiatives similar to those taken by
California under its MICRA liability reform law should be enacted. A $250,000 limit on
noneconomic damages must be established if true cost savings are to be achieved, and limits on
attorneys" fees significantly below the 33 1/3 percent limit proposed by the plan are needed. That
is no limit at all, since this is the typical share of awards taken from their clients now.

Physicians need to know from where the actual financing of the President's proposal will
come.
Conclusion

The President and the First Lady should receive full credit for advancing the health reform
issues and ensuring that health system reform has finally begun. Now, Congress has an
unprecedented opportunity to enact legislation that will change forever the way health care is
delivered in this nation. It is our intent to help ensure that change is for the positive, so that all
Americans can receive the high quality, personal medical care that most Americans now receive
from their physicians. That is our goal.

My comments today are general. It is my intent to provide an overview of our more basic
concerns as the President's proposal applies to physicians' ability to continue to serve in their
professional role of providing medical care to their patients, without constraint, a matter on which
physicians have serious reservations. (A detailed response to the President's plan is attached.)

128

As the members of this Committee well know, many hearings can and will be held on
these and many more specific issues over the next several months. I hope and trust that the
AMA will have the opportunity to make more specific comments when the time is appropriate.

129

AM A's Analysis of the C linton Plan

The President's Program

All US citizens/legal residents musi enroll in health i
plans. Plans may be purchased through a state/regional health
alliance. A large employer (more than 5000 employees) may
provide coverage through its own alliance. Health secunty card
entitles each to nationally defined comprehensive benefit
package. Government employees. Medicaid beneficiaries, and
retirees under age 65 also purchase through alliances,
Medicare, military health care. VA, and Indian Health Service

AMA's Response

Purchasing cooperatives can be useful in helping small
businesses pool their purchasing power to buy insurance.
Large employers should remain outside of alliances to create
true competition As envisioned here, though, alliances have
far too much market influence and must serve a regulator)
role under the control of the national health board For
alliances to work, large employers must be defined at more
than 500 employees, not 5000 It is truly small employers,
not ones with thousands of employees, who now have
problems buying insurance and could use alliances. B>
including large employers, alliances will monopolize
markets, thereby reducing competition and consumer control
of health care decisions. Also, the alliances are far too
much under the control of the national health board to be
effective, especially because of the budget caps they must
enforce. Rather than helping improve the insurance market,
alliances will serve as regulators, thereby bureaucratizing the
health care svsiem even more than it is now.

All employers must pay 80% of weighied-avg plan premium for
alt employees, with pro-rata contnbution for pan-time
employees under 30 hrs a week. But employer contnbution is
capped at 7-9% of payroll. Small employers (less than 50
employees) are capped between 3,5% and 6.5% depending on
employee avg annual wages. Corporate alliances: self-insured
large employers (5,000-t-) and equally large union plans may
self-fund, contract with health plan, or arrange coverage
through alliance; but must generally meet same requirements as
insured plans.

The AMA believes that the best way to achieve meaningful
health reform is to build on the existing employer-based
health insurance system. The inequities in the current
system should be addressed without sacrificing the health
care quality and access that most Americans enjoy This
goal can be achieved through an employer requirement wiih
appropnate protections for small businesses. Likewise, it is
cntical for employers to contribute the same percentage of
premium to whichever plan its employees choose. othei\vise
the system is biased toward managed care. The percent of
payroll cap is loo low for large business, discouraging them
from establishing their own plans, therefore increasing
monopsony buying power of the alliances

Employee/Individual Requirement

Employees pay 20% of weighted avg-cost alliance health plan,
depending on its cost. Self-employed and unemployed pay
100%. but anyone below 150% of poverty receives federal
premium assistance from alliance. Undocumented aliens not
eligible, but federal aid to institutions for their care continues
States must address migrant worker issues.

The federal government must increase, not reduce its
funding and leadership in addressing undocumented
individuals and migr^t workers Problems associated with
providing them care go far beyond states resources.
Assistance should be provided for individuals and families
with incomes under 200% of the poverty rale.

Nationally Defined Benefit Package

Comprehensive medical; clinical preventive services based on
periodicity schedule; hospice and home health; 30 days/episode
and 60 days/yr inpatient mental health/substance abuse with 30
visils/yr psychotherapy; family planning;, pregnancy-related;
hospice: outpatient prescnption drugs; rehab: DME and
prosthetic/ortholic devices; vision/heanng; preventive dental tor
children; health education.

The preventive benefit package is i
appear to use most current data. Other benefits are not
inconsistent with AMA's own recommendations for a
standard benefit package. But much more detail is needed.
Any national health board updating of this package should
be subject to Congressional approval Coverage for mental
health/s^Jbstance abuse should mirror medical care.

130

The President's Program

AMA's Response

Cost Sharing

Health plans may otTer

Low cost sharing -
services bui none tor inpaiienL 40% coinsurance point-or-
scrvicc opiion. SI 500 individual/$3000 family oui-of-pocket
max. S5 copay for prescnpiion

High cost shanng - none for prcvcnuvc; S200/S400 deductible.
20% coinsurance, and same ounjf-pockci max for
mpatient/ outpatient: S250/yr deductible. 20^^

Combination - low cost sharing if preferred providers used and
higher cost shanng with 20% coinsurance for out-of-nctwork
providers; same out^f-pockct max.

Under low cost shanng. 40% coinsurance for a pomi-ot-
service option is unacceptable, especially under a plan thai
will allow managed care plans to dominate the market Tn
help ensure the quality ot managed care, patients must be
given a reasonable opponunity to see physicians outside a
plan. Further, managed care plans should be required to
accept any physician who meets stated credentials and who
agrees to provide services under an agreement with the plan
and subject to plan capacity Medical savings accounts (MS
should be authonzed to assist individuals and families in
meeting out of pocket expenses including co-insurance and
deductibles. Plan should auihonze mdividuals to contract to
any health scrvicts they want with their own atter-tax funds

National Health Board

National board <

the new system. President appomts 7 members to staggered 4-yr
terms who then are federal employees and may not have health
care assets; I must represent states. Duties include

implementing and enforcing national health spendmg budget

establishing state plan requirements, monitonng compliance

. with enforcement

inicrprctine/updaiing bencht package
setting qjaliiy management/im(>rovement sysiei
; prices, but (

The AMA unequivocally opposes a national health spending
budget and giving a national board responsibility for
implementing and enforcing one. Such cenu^lized decision-
making and artificial spending have never worked anywhere
and will quickly bnng about difficulties in health care access
and quality A truly representative national commission ma>
be able lo help in setting goals for the health care system lor
expanding access, and in sening budget goals that take into
account disease and demographic changes and chances m
demand. But this proposal creates a new federal bureaucrac>
with pncc control authonty. Also, it is unacceptable that no
place has been reserved on the board for a physician or AM/

dmg prices.

State Responsibilities

States

t establish ai least

by 1/1/97.
eligible im

certify health plans to

ensure the availability of a plan paced at <
weighted-avg premium

submit to National Health Board plans lo i
plans, administer data collection and qualii
improvcmini

may establish a singlc-payor health care s)
with benefit package and cost shanng requ
single-payor alliance for part of a state.

The AMA strongly opposes the establishment of a singlc-
payor health care system, whether on a state or national le\el
as part of national health system reform legislation No
centralized decision-making authonty can control costs and
ensure adequate access to quality services, especially m health
care. When, for good reason, the national plan rejects a single
payor system nationally, allowing a state to subject its

131

The President's Program

AMA's Response

Health Alliances

Health alliances arc meant to act as conduits between health plaj
and individual purchasers of health insurance coverage,
contracting \fcith health plans to provide the required benefit
package and providing a simplified, uniform means for
individuals to choose between plans. Alliances

" must contraci with a plan unless its premium exceeds the
\vcighied-avg premium by more than 20*''o. its qualit> is
poor, or it discnminales-

may be a nonprofit corporation or stale agency, but
nonprofit's board must equally const
employers whose selecuon is determined by the ;

> the plan";

The AMA IS adamantly opposed t

fec-for-servicc True fee-for-scrvice gives individuals the
freedom to choose health care services By establishing a fee
schedule and bamng physicians and patients willing and able
from agreeing to the cost of their medical care, tnje choice no
longer will exist in the US health care system, Physicrans and
pauents will find it difficult to use choice to guard against health
care decision-making made at corporate and bureaucratic levels.
thus diminishing the ability of physicians to advocate for their
pauents.

t establish provider advisory boards

lividuals and h

publish consumer info on cost providers,
and quality of plans.

Alliances must offer at least 1 any-willing-provider fee-for-
servjce plan, but may limit number to 3 through competitive
bidding National board may waive requirement if not viable or
insutTicient interest After collective provider negotiations,
alliance sets provider fee schedule for each fee-for-service plan,
and providers may not balance bill- States may impose
budgeung on fee- tor-service plans. Corporate
. must also offer at least ! fee-for-service plan

If a health alliance acts as an impartial conduit between health
plans and purchasers, acting to make it easier for individuals an<
small businesses to make insurance purchases and encouraging
competitiveness between health plans, health alliances can help
bring about needed fairness in the health insurance market If
an alliance cannot act fairly, true competitiveness cannot be
assured- Alliances should be required to accept all fee-for-
service plans offered, instead of limiung the number to 3. True
freedom-of<hoice for individuals to determine what kind ol
health care delivery best meets their needs is severely
dimmished-

Plans should be encouraged to recognize the RBRVS for
determining physician reimbursement using individual physi
selected conversion factors.

Plans should authorize individuals to contract for any health
services they want with their own after-tax funds.

Corporate alliances subject to new fiduciary/ enforcement
requirements regarding national benefit package, plan info
requirements, and uniform data, claims, electronic billing.
and gnevance procedures.

Self-funded plans must set benefit payment trust fund:
beneficiaries receive special protection in bankruptcy if
employer fails.

AMA has long supported ERISA reform. The plan proposes
to address many of the problems identified by the AMA that
have developed under ERISA, including protecting
beneficiaries of self-insured plans from unfair coverage
Jecisions and plan insolvency Such changes have long been
needed to ensure that all Americans arc treated fairly by those
who insure their health benefits, whether an employer or an
insurance company.

National guaranty fund

ERISA preemption of state laws modified to apply only to
corporate alliances, allow nondiscriminatory taxes on them,
allow state all-payor rate seltmg. allow states to include
corporate alliances to reimburse essential community
providers.

However. ERISA

amended to authorize
large employers or to
insured plans within t

talc law should not be

single payor system to apply to

'arying reserve requirements fit)m

132

The Presidents Progr

AMA*s Response

Health Plans

- Health plans musi accept all eligible individuals, have an open
enrollment penod. and may not cancel/rcJucc benefits even for
enrollee nonpa>ment Prc-existing condition limits and disease-
specific exclusions are prohibited

* Each AugusL alliance negotiates premium rates with each plan
and publishes rates. Employer/employee pay community rale.
Alliance adjusts payments to plans based on nsk. using formula
set by nauonal health board. Plans with high

Plans must provide alliance with extensive info on cost quality.
provider availability, UR. consumer nghts. and plan

responsibilities.

Plans must provide consumers info on risks, benefits, medical
procedure costs, and advance directives Grievance procedures
and allemativc dispute resolution required.

State laws protecting against managed caic abuses are preempted.

State laws banning the corporate practice of medicine are

"he insurance reforms offered in the President's plan are
important elements of health 5>siem reform Scnmg
premiums based on communit> rating and eliminating pre-
existing condition exclusions have long been urged b\ the
AMA Health Plans should be required to create a comminee
of pracucing physicians within the plans that is responsible lor
establishing clinical decision cntena. Exceptions to
community rating should not be granted to large firms
Establishing a system of sharing uniform information about
plans through the alliances will help consumers make
informed insurance purchasing decisions. Nevertheless.
provisions that would preempt laws that states have enacted to
protect against abuses m managed care need to be eliminated
The President's plan, overall, gives such a strong
encouragement to managed care that states need to be allo^ved
to continue their authority to act when abuses occur

The plan should not override state corporate practice of
medicine laws in states that currently prohibit such

Further, managed care plans should be required to accept an>
physician who meets stated credentials and who agrees to
provide services under an agreement with the plan and subject
to plan capacity.

> own facilities or offer i

Out-of'Service-area emergency/urgent care required, paid on
alliance's fee-for-service payment schedule.

A plan must have advisory boards of providers selected by
providers, which must be consulted frequently and has acces

plan information.

Global Budgets/Price Controb

The plan descnbes a national health care budget based on the
ueighted-avg premium for the guaranteed benefit package as a
targeted backstop to market action. The Urget increase m
premiums for 19% is CPI + 15. CPI + I for 1997. CPI + 05 for
1998. and CPI for 1999 and beyond. A national per capita based
premium is set by the national board, as is a system to adjust at
alliance level for nsk factors like age/demographics. Alliances then
receive an avg premium from the national board. Plans submit bids
to alliances either blind or with knowledge of the target Alliances
then submit their negotiated premiums to nadonal board, which tells
the alliance if its avg premiums is acceptable of not If not. the
alliance renegotiates. If the alliance exceeds its target, there is a 2-
yr recoupment- Targets may not be adjusted, except by Congress.
Corporate alliances use an equivalent target and are termmated if
they miss target 2 out of 3 yrs.

The AMA staunchly opposes the setting of any national
budget Any decision-making in health care based mainly on
economics and not on patient needs is not m the best interests
of patients, and will lead to rationing that cannot address the
difficulties and inequities in our current health care system
This issue will be a key area of concern and acuvity in the
commg months as health system reform continues in Congress
The President's plan calls its spending limits "targets." The
AMA believes that a participatory process thai includes
physicians might be useful to establish true goals thai can be
flexible and are based on pauent needs. As written, though,
these "targets" are stnngent arbitrary caps on spending This
IS fully unacceptable.

133

The President's Program

AMA's Response

Administrative Simplification

• National board must develop simplified forms. By January 1995.
UB92 must be used for msiituiional services, standard health
insurance claim form similar to HCFA 1500 for noninstiiuiional.
HCFA 1500 for dentists, and universal drug clatm form for
pharmacies.

• National board must set automated transaction and codmg
standards. Private payors must adopt electronic data interchange
(EDI) standards by l.'l/95; federal programs ASAP after

Providers, including medical groups of over 20. must
ithin 6 months of standardization. States may deny
payment to plans not using EDL

Medicare simplification: contractors will be consolidated based
on function, not area; balance billing for DME eliminated:
national data file on Medicare beneficianes created, and Medigap
lerminalions take place as part of national data file; presumptive
waiver of co-insurance with physician's acknowledgement: phy-
sicians input in carrier performance; Pans A and B claim pro-
cessing integrated; attestation requirement eliminated except for
hospital medical staff pnvileges; pre-approval for 10 surgical
procedures eliminated; system changes more than once every 120
days prohibited; PROs must focus on patterns.

• The health security cards all individuals receive is like an
automated teller machine card, to be used to access a natior
uniform health data set established by the national board

• Unique identifiers to be established for plans, practitioners,
providers, and patients.

• An information system is envisioned that will be able to co
data from all encounters, using a standard format with an
emphasis on electronic records. Encounter data is to be
transmined to regional information network, to be used to s
national info trends. A
research is established.

AMA supports forward r
administrative simptlficalion
professionals more time for patient care activities These etTom are
necessary to improve access and help contain health care costs, but it
cniical that meaninghil clinical management information systems be
preserved Through the development and maintenance of the AMA s
CPT coding system, the medical profession has demonstrated its abili
to create and administer an efficient procedure coding system in
partnership with the government CPT already is widely used and
accepted by Medicare. Medicaid, and all major third-partv payers Tl
national board should recognize the profession's contribution and be
careful not to create new administrative burdens in the course of w> m

r adopting EDI s
adoption. We are confident that
quickly integraung EDI without
unique identifiers should be created by the government Physicians
already arc idcnufied by Medicare/Medicaid UPfN numbers, and SPIN
(Standard Prescnber Identificauon Number - an AMA/private sector
initiative to create a unique idenufier for claims processing and drug
utilizauon review) is receiving a favorable response as a solution to the
need for uniquely identifying prescnbcrs Accepted identifiers need not
be duplicated As with other EDI issues, assuring patient confideniialit>

5 micro-managemeni of the i

i of developing any informaiion management
nimum and not shitted Confidentiality

Quality

• A national quality management program is seL to be

15-member advisory council to the national board, consisting of
consumers, plan reps, states, and public health and quality experts.
National performance goals, minimum standards, research support
and a report on quality are required. Advisory council must set
national program to develop practice guidelines, scientific

Program is "customer-focused." based on consumer satisfaction and

outcomes. Plan info collected by alliances is to be used to compare

plans. Program publishes results of all plans annually Regional

data centers created. States enforce standards.

National regulation preempts local regulation; intervention must

focus on problems, with targeted reviews and randomly selected

validation sites; demo program required by 1/1/96.

Medicare PROs continue until HHS determine they are no longer

necessary

NIH ftinding expanded for effectiveness and outcomes based on

quality, with a program to evaluate reform and program to stud>

how consumer choice and decision-making take place.

: program that would
recognize the profession's well-established accrediting and
quality assurance programs. The AMA is deeply concerned
that physicians have not been included specifically in the
advisory council that will be responsible for so many
initiatives in quality, especially the establishment of practice
parameters. Wc will work to ensure that such efforts continue
to be led by the profession. Wc arc hopeful that HHS will
quickly come to
cost effective.

134

The President's Program

AMA*s Response

Scope of professional pracii

laws. However. HHS musi

of" a national model professional practice

practice nurses and physician assistants.

practice of health care professionals only

competency

The AMA opposes any federal efforts lo duplicate or supplani
states" responsibility to ensure their residents' health and
safety through national professional practice standards Slates
are in a unique position to react to their specific health care
needs, and deciding the appropriateness of professional
practice is a key means of assuring the safety and quality ut
health care In a state. Federal standards must not supplant

Physician Workforce

• After 5-yr transition. 50% of ph

J and specialty slots

Phase-in requires primary slots each yr. to increase

10%,

HHS allocates positions based t

council on graduate medical education: national council allocates

positions to regional councils, which (

programs. Allocations based c

training programs to actual practice, minority i

participation of locally coord

slots than assigned receive no nanonal GME

\elo over allocations Allocations good for up to 3 yis.

National council members must mcludc cducaiors. practicing
physicians, hospital administrators, program directors, nurses.
others. Views of national professional associatiofts must be sought
Regional councils include reps frpm health alliances. leachuig

programs, consumers.

Financing: insurer and Medicare pooled GME funds {S6 billion)
are made to programs, not instituuons. lo encourage out-of-
institution programs Transition payment made to hospitals thai
have reduced positions to replace residents with other stall
beginning at 150% of avg resident amount in fnsi yr.

development of pnmary
minonties and community traimng at
continuing medical education; double
practitioners, nurse mid-wives. and physician
emphasis for mental health/substance
school-based health care, commtmity

Medicare primary care incentives: reduce payment rates for office
consultations with savings transferrc
office visits, increase office visit RVUs to cover pre- and post
time and reduce RVUs for all non-primaiy care services to nu
neutrality; resource based overhead component: increase prima
care MPVS for pnmary care to GDP per capita ■»- 5% m 1995
increase 10% bonus for nonpnmary care m urban shortage are
and double bonus to 20% for pnmaiy care in all shortage area
reduce outlier intensity procedures.

The program would federalize the nation's system of medical
education. While more pnmary care physicians are needed.
the AMA opposes arbitrary quotas restricting individuals' tree
choice to pursue their chosen fields The reasons some
physicians do not choose pnmary care are complex and
involve lifestyle, practice environment, educational
background, levels of educational debt, future income, and
meeting personal goals based on individual interest. So a
multi-faceted approach to stimulate interest is needed. Federal
centralized decision-making will not guarantee an adequate
supply of primary care physicians. Allocations are best made
based on local needs and institutions' ability to provide an
acceptable educational expcncncc.

While the idea of a national council may have some merit, ii
should be advisory in nature and its composition reflect those
knowledgeable about medical education. Regional councils
predominantly made up of physicians could be established to
make advisory recommendations The size should not be
;ional health planning bodies with wide
demonstrated the political nature of such
groups, resulting in ineffective function. HHS should not
have veto power. Regional council decisions should be
advisory

AMA opposes

• differential payment to programs based on specialty

the use of accreditation bodies to rank programs by qualiT>'
the concept is not yet developed sufficiently to be elective

of independent funding of GME
positions; changes in need for physician training may require
flexibility in seeking funding

allocatmg funds to individual programs, which would
fragment the system and create a large, inefficient
bureaucracy; allocation of funds to consortia that include
medical schools would provide more effective coordination
and evaluanon of programs.

RBRVS should i

I be manipulated to achic

135

The President's Program

AMA's Response

i percentage add-on to help

Academic Health Centers

• Medicare funds and a surcharge on pnvaic health pla
(S6 billion) arc to be collected as a fixed i
academic hospitals

• Medicare payments to leaching hospitals to compensate for
uninsured and disproponionaie share are reduced-

• A national pool is established to support institutional research
positions for specialized care

• Health plans must cover routine costs of approved clinical proi
and have agreements with academic health centers lo care for
certain diseases in patient populaiions to assure access to acadt
health centers. Regional health alliance must monitor

AMA supports assistance to academic health centers based on
the additional costs of providing tertiary care. AMA also
supports the requirement that plans have an agreement that
ensures access to academic health centers when needed
Special attention must be given lo the transition penod until
an entire system of health care reform is implemented, so tha
elimination of disproportionate share funding for indigent car
does not create excessive hardship

Public/Preventive/Rural Health Initiatives

NJH funding for prevention and health research s

• With universal coverage, public health depts can
surveillance, environmental protection, housing, food/water suppi
epidemiology monitonng, emergency response. Slate formula
grants established.

)llection.

The AMA has long called for the:
in rural areas. Similar initiatives
areas must not be ignored.

;e kinds of incentives. especialK
in currently underserved urban

States encouraged lo develop

; health education programs to
:ommunity focus.

Rural health professional incentives include nonrefundable personal
SlOOO/mo tax credit for physicians {$500/mo for n
and physician assistants). NHSC loan paybacks excluded from
income. $IO.OOO/yr tax allowance for equipment purchased in
HPSA: student loan interest deduction up to S5000/vr

Workers' Compensation/Auto Injury

Health plans provide treatment for medical services under
workers' compensation and auto insurance policies and are
reimbursed at negotiated fee-for-service aUiance schedule with no
copayments. States must determine workers' compensation
benefits Under workers' compensauon. state freedom-of<hoice
provider laws are preempted.

The AMA opposes the preemption of state frecdom-of-choice
provider laws under workers' compensation. Without such
laws, workers will be forced to see physicians who will not be
their personal physician. Continuity of care, and thus quality
of care, may be scnously challenged.

Insurance

Two types of supplementary insurance are allowed - benefit
supplemental insurance and cost-shanng supplemental insurance
Only plans that have high cost shanng options may offer both.
Only high cost shanng can offer supplemental cost shanng
insurance. Added benefits supplemental insurance may not
duplicate coverage, community rating generally required, no
exclusions allowed. National health board regulates

The AMA supports consumer protections for supplemental
insurance similar to those now established for Mcdigap, The
plan should recognize the expertise of state insurance
commissions and the NAIC. The AMA objects to a
centralized national board approving all supplemental policies
Freedom-of-choice requires that the government not restnct
the availabihty of supplemental policies as long as consumer
protections i

aintained-

136

The President's Program

Clinical Labi

i required for labs performing 30.000 or more tests per ;

doing critical tcsimg where answer needed quickly, where i
A Quid lead to senous I

The AMA believes that the CLIA program is a costly
bureaucratic burden and should be repealed. But if CLIA
must continue, these provisions are consistent with changes i
AMA believes are necessary and has been working to brine

' tests/microscopic tests no longer have to

• Exempt labs doing
register or be involved at all-

• Limited license practitioners allowed to be added to

• More lesis added to waiver category

• E\isiing personnel grandfathered

• Proficiency testing educauon. with action only if

• Study to modity the cytology proficiency siandan

• Inspection focus shifted fttim all labs to high nsk

• Announced inspections are under review.

Long-Term Care

Home and community care program for all ages included in
benefits package States may design their community based
services system. Sliding-scale co-insurance required. HHS s
national budget for home and community based
allocates fiinds to the states; ai
as national budget

Again, placing a national budget on health care services is r
acceptable. Further, the need for long-term care services w
not be fully met unless a program is established to finance i
long-term care services, not only home and community care
Due to the custodial nature of such services, long-term care
must be addressed separately from medical concerns.

Liability Reform

• Patients must submit claims through i
resolution (ADR) system each health
models developed by national board.
court after ADR.

• Suits must include certificate of meiii
specialist in field relevant to claimed
established standards.

The President's plan I

EiUier party

State enterprise liability

request awartls to be paid in periodic

It met the need to address the
I health care. To ensure that the
: litigation and awards does not continue
under a new health care system. AMA has proposed initiatives
sunilar to actions taken in California under its MICRA.
including a $250,000 limit on noneconomic damages and more
stnngent limits on anomcys' fees Scning the limit on
attorneys' fees at 33 1/3 percent is no limit at all. since ihis is
the typical share of awards that anomeys take from their
clients now We are also concerned that health plans and not
states are responsible for establishing ADR programs, such
responsibility should be given to an impartial state authonl>
The AMA is opposed to opening the Practitioner Data Bank lo
die public. We are also opposed to enterpnse liability, since it
does not address the costs of the liability cnsis. only shifts
who pays for liability premiums. Providers following
clinically relevant guidelines developed by professional
associations should be allowed to raise such compliance as an
affirmative defense in liability actions

demonstralian projects receive federal

HHS authorized to develop pilot program to test effectiveness of
using practice guidelines adopted by the new national quality
management program, which is an expansion of the new Mame
cxpenment Physicians demonstrating compliance with guidelines
not liable HHS may work with stales to invest practice guidelines
« ith the force of law in pilot program.

137

The President's Program

AMA's Response

Antitrust Reform

A Small hospitals may merge. DOJ/FTC must publish guidelines

including the analysis used, and expedited reviews and advisory
opinions

B DOJTTC musi publish guidelines providing safety zones lor
ph>sician network joint ventures with less than 20% marltcl share
and Ihat share financial risk, with examples of acceptable vennires.
expedited business review or advisory opinion procedure Within
the safety zones, physicians may bargain collectively with
health plans about payment, coverage, decisions about medical
care, and other matters without fear of federal enforcement of
the antitrust laws.

C During transition, physicians/other providers allowed to negotiate
with health plans: narrow safe harbor established to ncgoiiaie
pnces if they share financial nsk (but not only fee discouniing);
physicians providing benefit package services may combine to
establish or negotiate pnces if they share nsk and their combined
market share is less than 20%. These safe harbors do not apply to
implicit/explicii threat of boycott.

D DOJ/FTC must publish guidelines for applying "state action
doctrine, where states grant antitnisi immunity to
hospital s/instiniUons.

E DOJ/FTC must publish guidelines descnbing under existing law
providers' ability to collectively negotiate fee schedules with the
alliances.

F Health insurers' anti-tnist exempuon under current law is repealed
so they no longer can collectively detennme their rates

These provisions are insuBicient in lening physicians compete in
what will be. under this plan, a health care system dominated b%
large corporate managed care entities. Provisions must be

large entities, as well as for the AMA and other societies to
negotiate on behalf of physicians

A Allowing small hospitals to merge may allow them to have
dominant market power in most communities. Further
consolidation will only enhance this control and provide far loo

B Guidelines for physician network joint ventures may be useful
AMA has proposed detailed guidelines for safe harbors for
physician networks Clear<ui examples are needed, including
efficiencies associated with clinical patient management using
practice parameters, referral protocols Fonnula for calculating
physician market share also needed.

C A carefiilly crafted definition is needed for fmancial nsk
shanng. e.g.. accepting capitation contracts, contracts widi fee

interest in the network itself.

D Tlie state action doctnne should be more broadly written

E Useful

F Useful

Fraud and Abuse

A DOJ/KHS jointly coordinate federal/state/local fraud and abuse law
enforcement activities.

B Current MedicareMedicaid anti-kickback statute expanded to all
payers; civil monetary penalues added; exceptions to include at-
nsk payments, all "downstream" payments made to provider in al-
nsk plan.

C All self-refeiials prohibited, except on at-risk basis.

D Federal authority is expanded to include forfeitures of fraud

law. including SIO.OOO civil monetary penalties.

E Medicare exclusion provisions apply to all health plans.

F Standard of knowledge is "knows or should know "

A Comprehensive efforts lo combat fraud m public and pnvaie
sectors are supported, but HHS 10 authonty or civil money
penalties should not be expanded to the pnvaie sector

B Appropnate for criminal penalties for intentional kickbacks for

all payers.
C Generally support ban on self-referrals but need exceptions in

siniations where there is a demonstrated community need and

D Forfeiture of proceeds of fraud is acceptable, but not RICO
confiscation Suppon bank-fraud model.

E Exclusion procedures should apply to all payers for cnminal
convictions except in cases where loss of provider would pui
patients at nsk of no access The HHS Secretaiy should noi
be authorized to exclude providers from pnvate plans unless
there is a cnminal convictions or there is an immediate and
grave nsk of hami to patients. Otherwise, the Secretary could
deny a livelihood for sunple failure lo comply with vanous
Medicare/Medicaid niles.

F Standard of knowledge should be "intent to commit fraud" so
that honest enors without cnmmal intent are not handled as
criminal matters

138

The President's Program

offer a: least I fec-

Medkire/Reductiont in Rcimbuncn

A Stales may integrate Medicare beneficianes into
coverage is same or bener. Alfianccs
for-service option offering Medicare.

B Individuals mav remain in alliance up

methodology ti
care program

By 7/1/%. Medicare will cover outpancni prcscnpaon dnigs
under Part B. with S250 deductible. 20% coiMy. capped at
SlOOO/yr Drug manufactureis must sign rebate agFeemcnts fo
difference between retail/non-retail raaiiteis. Reimbursement :
ai 90th percentile of actual charges.

A/B The AMA sup|:

beneficiaries should not be forced into other coverage
situations. If the alliance would impose limits on accc:
physicians or other providers, beneficianes should be apprised
of this situauon and have the opportunity to keep e
Medicare coverage.

Reductions in reimbur

F Establish cumulative expenditure goals for physician expendinircs.

G Reduce Medicare fee schedule conversion &ctor by 3% in 1996,
«iih primary care services exempt

H Establish pn)spective payment for hospital outpatient radiology.

I Reduce IME Adjustment to 5.65% in 1995 and 3.0% in 19% and
thereafter

K Reduce hospital inpatient capital payments.

' gives a higher level of coverage for care
provided through a managed care entity If care is equal. :
should coverage and fee-for- service should be given pani\

D The AMA supported drug coverage added as pan at the
Medicare Catastrophic Coverage AcL The pnmary AMA
concern was paueni access to the complete range of
drug/biological regimens. HHS should not be allowed to I
such access to certain drags.

Reductionl in Medicare reimbursement arc unacceptable. Not
oaly arc these savings inadequate to finance health reform,
they will sacrifice Medicare bcneficiarie] access to care. The
cats as proposed will continue the tradition of cost shifting
Medicare costs to the private sector.

E Oppose Eliminating volume and intensity from the MVPS
fonnula presupposes that these factors are never legitimaie
occurrences. It would penalize physicians for program grouih
beyond their control.

F Unclear. If this would prevent annual MVPS rebasmg. u
would be at odds with the ongmal intent to base, in part
annual updates on actual expenditures.

G Oppose This is another arbitrary reduction in Medicare thai
has no relationship to any likely reduction in the cost of
providing care.

H Oppose Setting related physician services on a prospective
basis places all economic incentives against patients The
AMA has long opposed prospective payment for physician
services.

I Oppose. The AMA historically has opposed hospiul updates

J Oppose. The AMA has supported a 7 reduction in the
IME adjustment with a follow-up study lo deiennine a
payment amount and equitable accounting methodology

K. Unclear. The AMA supported the OBRA-93 .

current 10% reduction in payments for die capiial-relaied co
Htal services, which previously applied
FY 1995. through FY 1998 We generally support
payments for hospital capital expenditures

139

The President's Program

AMA's Response

L Phase-down Disproponionale Share Hospilai adjustmeni by 1998

L Unclear. This adjustment may become increasingly

unnecessary if Medicare acute care coverage is shifted from
state Medicaid programs to alliances

M Expand ccnIcR of excellence.

M Unclear. While the AMA recognizes that such centers

nanually develop, effons to arbitrarily establish a center can
overlook existing capabilities, and may stifle competition that
actually serves to increase access to care by decentralizing
care sites.

N Lower home health cosi limits to 100% of median by 7/1/99

N Unclear. However, by shifting payment for these services
based on a national median overlooks the highly labor
intensive nature of the care provided, resulting in overpa> mem
and underpayment for these services based on where the care
is provided.

Competitively bid for all Pan B lab services, except in rural

Oppose. Medical services, including clinical lab services, are

areas, and other Medicare services.

highly personal, and do not lend themselves to competitive
bid. Patients should not have options for these services

P Extend Medicare Secondary Payor Provisions for ESRD patients.

P Support.

Increase Part B premiums for individuals with income above

Support.

$100,000 and for couples with incomes above $125,000

R 10% coinsurance for home health visits more than 20 days atter

R Suppon. Medicare payment of the 20% coinsurance for lab

discharge; 20% coinsurance for lab services

services was enacted as a quid pro quo for rcquinng that these
services be ftimished strictly on an assigned basis. With
application of coinsurance for these services, the mandatory
assignment requirement should be lifted.

S Subject all statoaocal employees to HI tax

S Suppon.

T Set Pan B premium into law

T Unclear The AMA has supported an income- sensitive Pan B
premium and maintaining payment levels for the premium at a
level to achieve at least the current 25% of costs for aged
bencficianes. (Without a change in current law, premiums
would decrease in 1999.)

Tax Subsidies

Employer contributions toward premium/cost shanng of benefit

AMA supports a cap on the lax advantages given for health

package are tax deductible to the employer and not counted as

insurance premiums. Sucit a cap establishes a limit on tax

support, but continues to allow individuals the right to seek

deduction is allowed only if contribution is made through an

additional coverage with their own after-tax dollars. Such a

alliance Benefits exceeding benefit package are taxable to the

cap will improve consumer decision-making since

employee; but if benefits provided as of 1/1/93, tax preference

expenditures beyond the cap are not subsidized.

allowed for 10 years.

140

Chairman Stark. Thank you.
Ms. Johnson.

STATEMENT OF GWENDOLYN JOHNSON, MA., R.N., MEMBER,
BOARD OF DIRECTORS, AMERICAN NURSES ASSOCIATION

Ms. GwKNDOLYN JoHNSON. Good afternoon.

Mr. Chairman and members of the committee, I am Gwendolyn
Johnson, a member of the board of directors of the American
Nurses Association. Thank you for the opportunity to discuss
health care reform.

The American Nurses Association is the only full service profes-
sional organization representing the Nation's 2 million registered
nurses. ANA is proud to support the Clinton administration's
health care reform plan.

We are also testifying today on behalf of the following organiza-
tions: The American Association of Critical-Care Nurses, the Amer-
ican Association of Nurse Anesthetists, the American Association of
Colleges of Nursing, the American Association of Operating Room
Nurses, Inc., the National League for Nursing, the National Nurse
Practitioner Coalition, and the Wound, Ostomy and Continence
Nurses Society.

Mr. Chairman, we are pleased to appear before this subcommit-
tee as you begin to decide how, not whether, to reform our Nation's
health care system, and we commend the members of the sub-
committee for their leadership in advancing the debate on health
care reform.

ANA is pleased that a number of members of this subcommittee
have introduced or cosponsored bills that propose a variety of dif-
ferent approaches for reform of the health care system. This will
indeed ensure that this issue is comprehensively discussed and
that all options are thoroughly considered.

America's 2 million registered nurses deliver many essential
health care services in the United States today in a wide variety
of settings, and know firsthand of the inequities and problems with
our Nation's health care system. Because we are there, 24 hours
a day, 7 days a week, we know all too well how the system suc-
ceeds so masterfully for some yet continues to fail shamefully for
all too many others.

Like President and Mrs. Clinton and so many Members of Con-
gress, America's nurses believe that it is time to frame a bold new
vision for health care.

Like the administration, nursing believes that universal access to
health care services is a principle that cannot be compromised. For
any health care reform plan to be successful, it is critical that it
address not only access to health insurance but also access to
health care services. Under the administration's proposal, the
health care setting could be restructured and reoriented so that
services would be available in schools, work places and community
settings as well as in hospitals and providers' offices. Consumer ac-
cess to health care services must be maximized.

A cornerstone of "Nursing's Agenda for Health Care Reform" has
been the guarantee of a standard health benefits package. This is
a critical point of agreement with the administration's plan, which
places new emphasis on primary care and preventive services deliv-

141

ered not only by physicians, but also by nurses and other qualified
health providers in convenient, accessible settings.

However, we do have some concerns about the mental health
benefits package, the full integration of long-term care in reformed
health care settings and the schedule of screenings that are pro-
posed for reproductive health cancers.

The expanded role of nurses in the reform health care delivery
system is apparent throughout the President's proposal. It is an
important element of the plan's emphasis on preventive health
services, services which have been at the center of nursing practice
since the inception of our profession.

However, the ability of nurses to provide health care services has
been continually hampered by a number of artificial barriers that
serve to cut off the consumer from access to the services of these
providers. These barriers include restricted reimbursement policies
based upon specialty or geographic location and State restrictions
on nursing practice.

The President's plan would address this problem by preempting
the barriers to practice by providing incentives for States to adopt
a Federal model for nursing practice statutes, and by including
payment for services of advanced practice nurses, such as nurse
practitioners, certified nurse midwives, and clinical nurse special-
ists.

We must guarantee that barriers to health care for the Nation's
elderly be removed. ANA was pleased to have the opportunity to
work closely with members of the Ways and Means Committee to
achieve enactment of the Rural Nursing Incentive Act that allowed
nurse practitioners and clinical nurse specialists who practice in
rural areas to receive direct reimbursement under Medicare.

That law now needs to be expanded to cover the services of all
nurse practitioners and clinical nurse specialists, regardless of geo-
graphic location and practice setting. This expansion of coverage
does not provide for reimbursement for new services but rather
provides for reimbursement of existing services in alternative cost-
effective settings by nonphysician providers. By taking this action
these advanced practice nurses would be able to provide essential
services to meet the health care needs of those older Americans
who currently have no access to affordable health care. Legislation
to achieve this objective has been introduced in both houses of Con-
gress this year. We urge you to insure that this important provi-
sion is incorporated into the health care reform package.

A very recent Gallup Poll revealed that the vast majority of
Americans — 86 percent — are willing to receive many of their every
day health care services from an advanced practiced registered
nurse that they now usually go to a physician to receive.

Mr. Chairman, we commend the subcommittee for holding this
hearing and for working so diligently to find solutions to the health
care crisis. We appreciate this opportunity to share our views with
you and look forward to continuing to work with you as comprehen-
sive health care reform legislation is developed.

Thank you.

[The prepared statement follows:!

142

TESTIMONY OF THE AMERICAN NURSES ASSOCIATION

BEFORE THE HEALTH SUBCOMMITTEE

OF THE HOUSE COMMITTEE ON WAYS AND MEANS

ON HEALTH CARE REFORM

OCTOBER 7, 1993

Mr. Chairman and members of the Committee. I am Gwendolyn Johnson, MA, RN,
C, on member of the Board of Directors of the American Nurses Association (ANA).
Thank you for inviting us to testify today on President Clinton's health care reform proposal.

The American Nurses Association is the only full-service professional organization
representing the nation's two million registered nurses including staff nurses, nurse
practitioners, clinical nurse specialists, certified nurse midwives and certified registered nurse
anesthetists. ANA advances the nursing profession by fostering high standards of nursing
practice, promoting the economic and general welfare of nurses in the workplace, projecting
a positive and realistic view of nursing, and by working closely with the U.S. Congress and
regulatory agencies on health care issues affecting nurses juid the public. ANA is proud to
support President Clinton's health care reform proposal.

Access to high quality, affordable health care is of concern to miUions of Americans
- not only to the over thirty seven million who are uninsured, but to the growing number
of currently insured who fear that changing or losing their jobs will result in loss of coverage
or that skyrocketing costs will make their dependent's coverage or their own out-of-pocket
health care costs imaffordable.

We are also testifying on behalf of the:

• American Association of Critical Care Nurses (AACN), the largest specialty nursing
association in the United States with over 78,000 members who are dedicated to the welfare
of people experiencing critical illness or injury. AACN has pledged its strong support of the
Clinton Administration's health care plan.

• American Association of Nurse Anesthetists (AANA), the professional society that
represents over 24,000 certified registered nurse anesthetists (CRNAs), which is 96 percent
of all nurse anesthetists who practice across the United States. AANA's Board has voted
to support President Clinton's health care plan.

• American Association of Colleges of Nursing, with over 450 members offering
baccalaureate, master's, and doctoral nursing education;

• Association of Operating Room Nurses, Inc., the professional organization of 48,000
perioperative nurses dedicated to enhancing the professionalism of perioperative nurses,
promoting standards of perioperative nursing practice to better serve the needs of society
and providing a forum for interaction and exchange of ideas related to perioperative health
care;

• National League for Nursing, with 1,620 nursing schools, 17 constituent state leagues, 104
health care institutes and 15,000 individual members;

• National Nurse Practitioner Coalition, a group of nurse practitioner organizations who
advocate for universal access to basic health care and the removal of barriers to consumer
access to nurse practitioner care; and

• Wound, Ostomy and Continence Nurses Society, an association of nurses who specialize
in the prevention of pressure ulcers and the management and rehabilitation of persons
which stomas, wound, and incontinence.

143

America's two million registered nurses deliver many essential health care services
in the United States today in a variety of settings - hospitals, nursing homes, schools,
home health agencies, the worlq)lace, community health clinics, in private practice and in
managed care settings. Nurses know firsthand of the inequities and problems with our
nation's health care system. Because we are there - twenty-four hours a day, seven days
a week - we know all too well how the system succeeds so masterfully for some, yet
continues to fail shamefully for all too many others.

Like President and Mrs. Clinton, the members of this Committee and many others,
beUeve that it is time to frame a bold new vision for reform — one that keeps what works
best in our current system, but casts aside institutions and policies that fail to meet present
and future needs - a plan that addresses the triad of problems that exist in the current
system: inequitable and limited access, soaring costs and inconsistencies in quality and
appropriateness of care delivered.

NURSING'S AGENDA FOR HEALTH CARE REFORM

For the last five years, nursing has worked to develop a plan which encompasses the
profession's best vision of a health care system for the future. To date, in addition to ANA's
state and territorial associations, more than 80 national nursing and health-related
organizations have endorsed this proposal for health care reform, entitled 'Nursing's Agenda
for Health Care Reform*.

Nursing defines the health care crisis in terms of the need to restructure, reorient
and decentralize the health care system in order to guarantee access to services, contain
costs and ensure quality. Fundamental restructuring must occur because patchwork
approaches have failed. Health care reform must be comprehensive and not limited to
addressing only one or two components of the problem. Nursing's proposal does not define
the problem only in terms of the uninsured or underinsured; rather, it addresses the health
care needs of the entire nation. It is nursing's belief that the system must emphasize and
support health promotion and disease prevention and show compassion for those who need
acute and long-term care.

Among the basic components of "T'Jursing's Agenda for Health Care Reform" are the
following:

* universal access for all citizais and residents provided through a restructured health
care system;

* a federally-defined standard package of health care services including preventive, pre-
natal, well-child, mental health, acute and short duration long-term care services;

* guarantees that coverage is provided for the poor with a plan administered by the states
In order to anticipate the health care needs and changing demographics of the population.
Elimination and restrictions on co-payments and deductibles for those near or under the
poverty level;

* an employer mandate to ensure that all employed persons have access to health
insurance with a standard benefits package;

* a shift in focus to provide a better balance among treatment of disease, health promotion
and illness prevention such as coverage for immunizations, prenatal care, and health
screening which has proven effective in preventing cosdy and devastating disease (e.g.,
colorectal and testicular exams, pap smears and mammograms);

* enhanced consumer access to services by delivering primary health care in community
based settings. The new system would facilitate utilization of the most cost-effective
providers and therapeutic options in the most appropriate settings;

144

* Steps to reduce health care costs, such as:

- ensuring consumer access to a full range of qualified health care providers;

- providing early treatment and prevention services at convenient sites, such as schools, the

workplace, and other familiar community settings;

- reducing defensive medicine and unnecessary practices;

- controlled growth of the health care system through planning and prudent resource

allocation; and

- elimination of unnecessary bureaucracy and decreased administrative requirements

through the use of uniform claim forms and electronic billing;

* utilization of case management for people with continuing health care problems to
promote active participation in their care and reduce fragmentation of the health care
system;

* provision of long-term care services of short duration and in addition to a program of
extended care in order to prevent personal impoverishment. This proposal will require
more shared community responsibility for care. It will prevent impoverishment due to
extended long-term care needs;

* insurance reforms are required to ensure improved access to coverage, including
community ratings, affordable premiums, reinsurance pools for catastrophic coverage and
other proposals to assist the small group market;

* access to services are ensured by no payment at the point of service and elimination of
balance billing in all health plans.

There are several key features of "Nursing's Agenda for Health Care Reform" that
are very similar to provisions contained in President Clinton's health care plan, announced
on September 22. We commend President and Mrs. Clinton, as well as members of the
White House Task Force on Health Care Reform, for the time and effort they have devoted
to this critical issue.

V NTVERSAL AC CE SS

Like the Clinton Administration, nursing believes that universal access to health care
services is a principle that cannot be compromised. The Clinton Administration proposal
would ensure that health care would be available to everyone - including those who are
now uninsured, underinsured and those who are potentiaJly uninsured.

For any health care reform plan to be successful, it is critical that it address not only
access to hedth insurance, but also access to health care services. Under the Clinton
Administration's proposal, the health care setting could be restructured and reoriented so
that services would be available in schools, workplaces and community settings as well as
in hospitals and providers' offices. Consumer access to health care services must be
maximized. Consumer education must be prioritized to foster increased awareness and
responsibility for personal health and self care and to provide a greater capacity for
informed decision making in selective health care services. In addition, criteria for
outcomes of care should reflect the joint perspective of both the health care consumer and
the health care provider.

The plan's emphasis on preventive and primary care services is also crucial, because
it means that consumers will have a relationship with a primary care provider including
nurses, nurse practitioners, certified nurse midwives, etc., that begins when they are still well
- so that disease can be prevented whenever possible and so that the provider will be able
to intervene earlier, to minimize the severity of illness.

145

We commend the Administration's plan for recognizing that there will be a greatly
increased need for primaiy care providers in order to ensure access to care and for
addressing this need in a comprehensive manner. The plan calls for inaeased funding for
primary care providers - including advanced practice nurses such as nurse practitioners,
clinical nurse specialists and certified nurse midwives. It also calls for removing barriers to
the practice of these advanced practice nurses so that consumers' access to these much-
needed services is not restricted.

We applaud these moves because they will gready assist in achieving the goal of
imiversal access to care. The role of nurse providers is very important to the issues of
access to high quality health care. The health care ^tem will need a substantial increase
in hours of care of these providers.

We are also extremely pleased to see that the Administration plan has addressed the
need for increased access to services in rural areas by creating incentives, including financial
incentives for health care providers to serve in those areas. Again, nurse providers can play
a key role in treating the nevdy insured populations under health reform.

As the members of this Committee know, there is a growing trend in this country
toward part-time and intermittent enq}loymenL Unfortunately, such employment status has
often meant foregoing benefits, including health insurance benefits. Women comprise the
majority of these part-time employees. Nurses have not been immune to this trend, and
nursing associations are very concerned about it Increasingly, nurses in both full-time and
part-time employment are losing their employment benefits including health insurance. We
know of registered nurses employed full-time at $10.00 per hour and with no health care
benefits. Their salary does not permit purchase of incUvidual insurance. Guaranteeing
health insurance to all employees is something that is of great importance to nurses both
as health professionals and as employees.

STANDARDS BENEFITS PACKAgE

A cornerstone of "Nursing's Agenda for Health Care Reform" has been the guarantee
of a standard health benefits package. We are gratified that the Administration's proposal
provides a guaranteed package of benefits, emphasizing a broad scope of quality health
services, not just treatment of disease. It supports school-based clinics, enhanced services
for imderserved populations and health educatiorL It includes such critical elements as
home-based care and public health initiatives and also takes an important step toward
addressing the growing need for better and more accessible long-term care services. In
addition, the Administration's package includes such important preventive services as
immunizations, screening and prenatal care. It places new emphasis on primary care and
preventive services delivered not only by physicians, but also by nurses and other qualified
health care providers in convenient, accessible settings.

By including services that are geared toward preventing and minimizing disease, the
Administration's plan can save the health care system immense amounts of money and
ensure a healthier population. One of the clearest examples of preventive care saving long
term costs in the health care ^stem is the provision of pre-natal care. Numerous studies
have shown that receipt of adequate pre-natal care is associated with the improvements in
pregnancy outcome, particularly a reduction in the risk of low birth weight infants. For
example, California Department of Consumer Affairs has estimated that the State could
save $66 million annually in neo-natal intensive care unit changes if all women received
adequate prenatal care.

We urge the Committee to act to ensure that full and complete reproductive health
services are available to women and that preventive screening services, such as
mammograms and Pap smears, be available in intervals that are sufficient to detect disease
in a timely fashion.

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THE ROLE OF THE NURSE PROVIDER

The expanded role of nurses in a reformed health care delivery system, including
advanced practice nurses such as nurse practitioners, is apparent throughout President
Clinton's proposal. It is an important element of the plan's emphasis on preventive health
services-services which have been at the center of nursing practice since the inception of
the nursing profession. Nurses are key providers in acute care, school and community health
clinics, in home care, hospice care and ambulatory care, all of which are part of the package
of benefits to be available under the President's plan.

Nurses, including advanced practice nurses, are well-positioned to fill many of the
current gaps in accessibility and availability of primary and preventive health care services.
There are approximately 100,000 advanced practice nurses with advanced education and
training in providing primary care services. As many as 300,000 additional nurses could be
prepared to provide such services with additional training.

Nurses often provide care to those who have no access to the current health delivery
system. For example, the Family Nurse Practitioner Program at the University of California
- San Francisco has developed a health services program in an iimer-city homeless shelter
for families. A nurse practitioner is the only health care provider for these families. She
diagnoses and treats episodic health problems and has demonstrated that, with regular
return visits to the Shelter's CUnic, many of the problems are kept firom worsening and
requiring hospitalization.

A family nurse practitioner in Washington, Kansas directs a clinic serving the
critically underserved, as defined by the Kansas Department of Health and Environment.
The physician director of this clinic left in 1986, and the clinic subsequently lost its Federal
funding. At this time, the clinic is bemg leased by a country hospital from a non-profit
corporation and has contracted with the nurse practitioner to run the clinic which includes
eight fully-equipped exam rooms. Since a physician is not on the premises, the advanced
practice nurse needs to be eligible for direct reimbursement of her services. As she serves
in a rural area, she became eligible for reimbursement under Medicare in 1991. She also
works through the Kansas Blue Cross and Blue Shield office, the state Medicaid Bureau,
and other private insurers to obtain reimbursement imder each of their systems. Currently,
in the town of Washington, Kansas, there is only one family physician and only three
physicians in the entire county. The nurse run clinic is essential to providing the citizens of
Washington, Kansas with health care services.

In Chicago, there is a program called the Beethoven Project. This program occupies
10 renovated apartments in a Chicago public housing project which has a high level of
poverty and crime. Comprehensive services, such as primary health care, Head Start, and
a full-time child care center in addition to drop-in counseling, psychological consultation and
care management are provided by the nurse directors.

However, the ability of nurses to provide health care services has been continually
hampered by a number of artificial barriers that serve to cut the consumer off from access
to services provided by these competent and qualified health providers. These barriers
include restrictive reimbursement policies by Federal and state programs and private
insurers, and they also include irrational restrictions on nursing practice such as physician
supervision requirements by laws and regulations at the state level. The laws regarding
reimbursement for advanced practice nurses are compUcated and convoluted as to which
categories of advanced practice nurses may be reimbursed, in what geographic areas, who
may be paid and whether or not collaboration with other health providers is required. The
current laws are so confusing and complex for carriers, providers and consumers that they
have become a barrier to access to these services in and of themselves.

We must guarantee that barriers to health care for the nation's elderly are removed.
ANA was pleased to have the opportunity to work closely with Members of this Committee,
as well as with Members of the House Energy and Commerce and Senate Finance

147

Committees, to achieve enactment of the "Rural Nursing Incentive Act". That provision,
which was included in the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508)
allows nurse practitioners and clinical nurse specialists who practice in rural areas to receive
direct Medicare reimbursement under Medicare.

That law now needs to be expanded to cover the services of all nurse practitioners
and clinical nurse specialists, regardless of geographic location and practice setting and
regardless of whether they are associated with another health care provider. This expansion
of coverage does not provide for reimbursement for new services, but rather provides for
reimbiu"sement for existing services in alternative cost-effective settings by non-physician
providers. In addition, modeled after the bonus payment of physicians who work in health
professional shortage areas (HPSAs), these practitioners would also be paid a bonus
payment when they work in HPSAs. Extending bonus payments to non-physician providers
has also been recommended by the Physician Payment Review Commission. By taking this
action, these advanced practice nurses would provide essential services to meet the health
care needs of those older Americans who currently have no access to affordable health care.

ANA has been working closely with Members of the House and Senate to achieve
this objective. Legislation to provide direct Medicare reimbursement to nurse practitioners,
clinical nurse specialists and certified nurse midwives has been introduced in the House by
Reps. Ed Towns (D-NY) and Bill Coyne (D-PA) [HJL 2386] and in the Senate by Senators
Charles Grassley (R-IA) and Kent Conrad (D-ND) [S. 833]. The Congressional Budget
Office has recently estimated that if Medicare reimbursement were extended to nurse
practitioners, clinical nurse specialists, and certified nurse midwives at 85 percent of the
physician fee schedule, and that if that Medicare reimbm^ement was also provided to
physician assistants, the cumulative cost would be only $117 million over a five-year period.
That is a minuscule amount to expend to ensure that access to health care services would
be available to individuals who might otherwise not be forced to forego those services.

Another example of payment inequities for nurses under the Medicare system is the
lack of reimbursement for operating room nurses serving as assistants at surgery. The issues
of Medicare reimbursement for registered nurses who assist at surgery has been an
important issue for ANA and the Association of Operating Room Nurses since a provision
was included in the Omnibus Budget Reconciliation Act of 1986 that permitted
reimbursement for physician assistants who first assist at surgery. The ability of physician
assistants to be reimbursed under Medicare has created employment disparity for nurses
who provide the same service, but are not reimbursed under the law. Rep. Cardiss Collins
(D-IL) has introduced legislation, RR. 1618, to permit direct payment xmder Medicare
Program for the services of registered nurses as assistants at smgery. We support this
legislation.

In addition to the access problems confronted by our senior citizens, many Medicaid
recipients are also being forced to forego essential health care services because health care
providers are not available to them. In order to improve access to care under Medicaid,
certain reforms in payment and coverage policy must be enacted by the Congress. At the
present time, the Medicaid program mandates the coverage and payment of nurse
midwifery, certified pediatric nurse practitioners and certified family nurse practitioners, but
does not mandate the coverage of services furnished by other nurse practitioners, or by
clinical niu^e specialists and certified registered nurse anesthetists. The Medicaid program
needs to directly reimburse for the services of these practitioners so that they may be
utilized by Medicaid recipients.

Several states have dianged their State Medicaid payment and coverage policies to
encourage the use of these practitioners and have been able to increase access to care for
vulnerable populations. For example, in New Hampshire, the services of nurse practitioners
are covered by Medicaid and access to care is improved. Many physicians have a limit on
the number of Medicaid patients they will accept in their practice and refer additional
Medicaid beneficiaries to nurse practitioners who see them in their own practice or through
well-child and pre-natal clinics. Some nurse practitioners in New Hampshire have a

148

caseload that is 90 percent Medicaid. The State's Medicaid payment poUcy ako encourages
the use of these practitioners. Since 1982, nurse practitioners have had their services
covered by the Medicaid program at 100 percent of the physician rate. According to
Charles Albano, Chief of the Bureau of Maternal and Child Health in New Hampshire,
nurse pracititoners are relied upon to provide the vast majority of services to low income
women, 75 percent of whom are Medicaid recipients. Nurse practitioners are also used to
staff the family plaiming clinics and the well-child services in the state.

Medicaid payment policy needs to be improved to increase access to care. Payments
to nurses in advanced practice under the Medicaid program need to be based on the service
and not on the type of provider. This pohcy in New Hampshire provides a positive incentive
for pre-natal and well-child clinics to use nurse practitioners. Washington State has adopted
a similar policy of payment based on the service.

In addition, Washington State changed its Medicaid fee schedule to improve access
to care. In 1989, the State Legislature added $200 - $300 to the obstetrical package to offset
malpractice costs and to improve recruitment of providers. In 1990, the policy was
established to pay all providers the same rate for the same services. This had a significant
effect on recruiting nurse practitioners and certified nurse midwives. There is no nurse
midwifery educational program in the State, and yet the improved competitive fees were
instrumental in bringing these practitioners into the State to staff the clinics. In two years,
the mmiber of certified nurse midwives increased by 33 percent and there has been a limited
turnover of certified nurse midwives, despite their serving a high risk population.

Laws and regulations in many states place unnecessary restrictions on the practice
of nurses, including advanced practice nurses, to provide services to patients, to provide
routine care and medications, to bill insurance companies, to operate a private practice, to
obtain clinical privileges or to admit patients to a hospital. For example, in Vancouver,
Washington, one nurse practitioner provides health screening, immunizations and other
services to over 2,000 poor children in five iimer-city schools which she visits weekly in her
mobUe van. However, in other states, such as Illinois, this nurse practitioner could not
perform these services, since State law prohibits her from being du-ectly reimbursed by
Medicaid.

Representative Bill Richardson (D-NM) has introduced a bill (H.R. 1683) to improve
access to the services of nurse practitioners and clinical nurse specialists by mandating the
coverage and payment of all nurse practitioner and clinical nurse specialist services under
the Medicaid program. An identical bill (S. 466) has been introduced in the Senate by
Senator Tom Daschle (D-SD). The Congressional Budget Office recently estimated that the
cost of enacting this proposal would be $46 million over a five-year period. That is a very
small amount when compared to the value of increasing the access of Medicaid recipients
to badly needed health care services.

Inconsistent state restrictions or prescriptive authority for advanced practice nurses
are another barrier to health care and promote the costly use of an additional provider.

In addition to the general examples of barriers to practice just noted, there are three
specific Medicare reimbursement barriers to practice that exist for certified registered nurse
anesthetists (CRNAs). First, the current Medicare conditions of payment for anesthesiology
services that anesthesiologists must meet in order to be paid for Medicare for medically
directing a CRNA, restrict CRNAs from performing all the components of an anesthesia
service that they are legally authorized to perform. For example, some anesthesiologists
insist on performing the anesthesia induction on all patients themselves, then leaving the
CRNA to finish the case. Second, the current Medicare hospital condition of participation
for anesthesia services and the Medicare ambulatory surgical center condition of
participation for coverage for surgical services restrict CRNA practice by requiring physician
supervision of CRNAs. Third, the current Medicare regulation on payment for the services
of CRNAs states that if a CRNA and anesthesiologist work together on one case, the
anesthesiologist may bill the case as if he/she personally performed it and receive 100

149

percent of the Medicare payment. No Medicare payment is typically made to CRNAs
involved in such a case, even if the CRNA was the provider actually administering the
anesthesia to the patient.

Nurse managed units within acute care settings are also both cost effective and
provide quality care. For example, nurse managed units are proving to be very successful
in managing patients being weaned from respirators. In addition, studies have documented
the positive outcomes demonstrated by the use of neonatal nurse practitioners with low
birthweight infants.

The President's plan would address the problem of artificial restrictions on nursing
practice by preempting such barriers to practice, providing incentives for states to adopt a
federal model for nursing practice statutes, and by including payment for services of
advanced practice nurses. It is our understanding that the Administration plans to shore up
these provisions by ensuring that advanced practice nurses do not face exclusion or other
discrimination by health plans and by extending Medicare coverage to the services of nurse
practitioners and clinical nurse specialists in all settings.

Just as nurses throughout the United States have demonstrated their abiUty to
provide high quality, cost effective and accessible health services, consumers have shown
their widespread acceptance of these services and their willingness to continue receiving
primary care services from nurses. A recent Gallup poll revealed that the vast majority of
Americans (86 percent) are willing to receive everyday health care services from an
advanced practice registered nurse that they now must go to a physician to receive. Only
twelve (12 percent) percent said they would be "unwilling" to go to a registered nurse.
Nurses are currently working with consumer-oriented organizations in order to promote
shared principles of health care reform. We are confident that as the American public
becomes more familiar with the primary care services that nurses can provide, and as more
Americans have an opportunity to receive such care from nurses, that the "imwilling"
category will decrease sharply. In fact, we believe that, based on the experiences of
advanced practice muses in HMO, clinic, and private practice settings, more and more
Americans will identify nurses as their provider from whom they select to receive primary
care services.

OUAUTY ISSUES

As health care reform becomes a reality, hospitals and other health care institutions
will experience increasing pressure to contain costs. As the focus of the health care delivery
site shifts from acute-care institutions to community based care, there will be an increase
of hospital mergers and closures of hospitals resulting from an oversupply of beds. It is
anticipated that some hospitals will specialize and others will integrate services such as
home health and nursing homes.

Nurses have had an opportunity to experience first-hand what many hospitals do
when they face pressure to cut costs. In the last few years, nurses have grown increasingly
alarmed at the wholesale reduction in quality of care that many hospitals have initiated in
the name of cost-savings and cost-efficiency. Numbers of nurses have been cut and nurses
have been laid off. In their place, hospitals have hired unlicensed, semi-skilled personnel,
often ttained by the hospitals themselves in brief training courses. While the use of
unlicensed personnel to assist registered nurses is not new, hospitals in the last few years
have greatly expanded the use of these personnel, both in numbers and in the range of
functions they perform- This has happened at a time when, due to a number of factors, the
severity of illness of the hospitalized patient population has increased significantly. As a
result, registered nurses find themselves caring for and supervising care for ever-greater
numbers of increasingly sick patients. This has meant a continual downgrading of care for
patients, one which poses a real risk to their health and safety while hospitalized.

150

Many hospitals have openly stated--threatened, if you will-that they will increase the
trend toward downward substitution if health care reform is enacted. We consider this not
only a threat to the professional and economic security of nurses, but also to the patients
we care for-patients who literally entrust their lives to the hospitals. We beUeve that
hospitals must adhere to strict quality controls if patient care is to be protected. Hospitals
should not be permitted to sacrifice patient care in the name of cost efficiency. We have
received every indication that the Administration will work to institute mechanisms to
protect and ensure safe, quality care both in the long run and in the period of transition to
a reformed health care system. These mechanisms will include the development of patient
outcome measures as well as, in the immediate period, criteria that monitor changes in
hospital staffing and patient care delivery patterns to ensure that patient care is not
compromised.

NURSING EDUCATION

Health care reform will require a refocusing of knowledge and skills for nursing
faculty and future nurses. With greater emphasis on prevention and early intervention, as
well as a decreased need for acute care nurses, nursing education will need to be re-focused
on primary health care and the management of acute minor illness and complex chronic
diseases. Skills in case management, discharge planning, supervision of health personnel,
and financial planning will be essential. Fortunately, many nurses are skilled in these vital
areas, but many more will be needed.

The trend that will occur in a health care reform environment which is of most
significance to nurses is the shift in balance between episodic, high cost, specialty focused,
hospital based tertiary care to primary and preventive care delivered in a range of
ambulatory care settings by a variety of practitioners. This shift is already occurring, as
witnessed by the rapid growth in home care and ambulatory care services.

Since World War II, the majority of nurses have been educated for and employed in
hospitals. Significant educational efforts on both the part of individual nurses and the health
system are now needed to focus on the delivery of primary health care services. The
Administration has included several health provider education initiatives in their proposal.
Under their plan, the Secretary of Health and Human Services will determine the estimated
need of nurse workforce and advanced practice nurses needed to meet the current health
care demands of the nation. This will be based on the workforce estimates developed by
the National Council on Nurse Education and its allocated regional councils. To fund nurse
education, new programs need to be established to increase the supply of nurses.

According to the National Sample Survey of Nurses (1988), there are approximately
125,000 registered nurses working in physician offices, freestanding clinics, ambulatory
surgical centers, health maintenance organizations and other ambulatory care settings. In
addition, there are approximately 11,000 registered nurses working in community/public
health settings, 48,000 in school health, and another 22,000 in occupational health. With the
appropriate funding support, this pool of generalist nurses could begin to rapidly increase
the nation's supply of primary care providers.

Nursing commends the Clinton Administration for its increased focus on nurse
education issues. It is clear that the United States health care system has an increasingly
urgent need for primary care providers. Immediate funding must be made available to
strengthen existing advanced practice nurse programs and to establish new programs to
prepare the primary care providers so urgently needed.

The Administration's plan would shift the funding emphasis under Graduate Medical
Education from specialty physicians to primary care physicians. Advanced practice nurses
will be increasingly needed to fill the future gap created in this shift to primary care
providers and in some specialty areas. For example, a reduction in the supply of physician
anesthesiologists will require increased funding to educate a greater number of certified
registered anesthetists.

151

Nursing has specifically recommended that an amoimt equal to 10 percent of direct
Graduate Medical Education (GME) funds be pooled from all insurers and be used in a
manner similar to that used in the GME program for physicians. These funds would be
allocated to support the education and training of primary care nurses and specialty
advanced practice nurses, such as certified registered anesthetists, who will be needed in
greater numbers imder the Administration's plan by allowing reimbursement of providers
for faculty costs and student stipends through GME. This program would enable hospitals
to maintain quality service and cost effectiveness within the constraints of the new system.
This new program could be funded by a combination of Medicare contributions and a
surcharge on health premiums. Because of the importance of advanced practice nurses to
the delivery of care, a constant stream of dollars is needed to support the education and
training of these providers on a basis similar and equal to resident physicians. Nursing
believes that this fund must be in addition to the current Nurse Education Act program.

In addition to preparing primary care providers and other nurses, it is also of
importance to ensure that there is an adequate supply of nurse educators, both at the
undergraduate and graduate levels of education. EJdsting nursing faculty may need
additional training themselves in order to become nurse practitioner and other advanced
practice nurse educators.

Nursing strongly supports the Administration's stated intention to increase the
cultural diversity of the heaJth care workforce by supporting programs aimed at under-
represented ethnic, minority and/or disadvantaged persons. The proposal supports efforts
to recruit and retain students for nursing and other professions and to increase the number
of minority faculty and researchers in the health professions.

ADMTNTSTRATIVE SIMPLI FICATION AND COST SAVINGS

Nurses throughout the nation breathed a collective sigh of relief when the President
outlined the need to simplify the mounting paperwork and other administrative requirements
that burden our health care system. We know firsthand what a waste of professional time
these requirements can represent Too often, nurses are forced to take time away from
patient care and devote it to filling out forms. It has been estimated that a staff nurse fills
out an average of 19 forms per patient. Thus, we applaud the President's proposals to pare
down and simplify paperwork and other wasteful administrative requirements.

However, we need to draw a distinction here between completion of insurance forms
and other activities that serve little other than facilitating the flow of paperwork and
bureaucracy, and documentation that does facilitate maintaining and improving quality and
patient care standards. The Administration's proposal would emphasize data collection that
is related to quality of care, development of outcomes criteria and other activities that are
directly relevant to patient care. As health care professionals, we regard this as important
and necessary. The distinction we make is between needless and endless paperwork and the
collection of patient care information that leads to continuous improvement in the quality
of care. We are more than happy to give up the former and opt for the latter.

Nursing also supports the greater use of community rating, eliminating pre-existing
conditions as a way for insurance companies to reject higher-risk individuals and limiting an
individual's out-of-pocket expenses following a catastrophic health event

CONCLUSION

Mr. Chairman, we commend the Committee for holding this hearing and for working
so diligently to find solutions to the health care crisis. We appreciate this opportunity to
share our views with you and look forward to continuing to work with you as comprehensive
health care reform legislation is developed.

Thank you.

152

Chairman Stark. Thank you, Ms. Johnson. I had a question. You
may want to submit this to us later, but in your testimony you talk
about an average of 19 forms filled out for each patient. I would
like to explore that for a minute, then ask you to please send me
copies of those because my guess is those forms have largely to do
with the health care of the patient.

My limited experience in hospitals has been that the insurance
forms are filled out downstairs before you even get into the room,
and that the nurses may be ordering tests, there may be entries
for the medical record, there may be entries for malpractice insur-
ers that are required to keep the doctors from losing all their
money. But I don't know that any system is going to do away with
many of those forms, and you do go on in your testimony to say
that some forms are indeed necessary.

I think you are probably beginning to recognize the usefulness of
automated patient records. I hope you are.

Ms. Gwendolyn Johnson. Yes.

Chairman Stark. But there has been an implication that these
19 forms that the nurses fill out somehow have to do with a lot of
useless paperwork relative to a payment system. Is that a fair
characterization of those 19 forms?

Ms. Gwendolyn Johnson. In many cases in hospital settings a
lot of the forms are essential and necessary. I myself work as a
staff nurse in a local area hospital. However, a lot of the time that
is spent with patients is ensuring that they have the availability
and the social supports necessary to meet the requirements related
to

Chairman Stark. I understand about social support, yes, but the
inference is that somehow we are wasting a lot of your time and
those are forms that could be filled out by any old clerk.

That isn't the case, is it?

Ms. Gwendolyn Johnson. No, that is not the case.

Chairman Stark. That is what I thought. Those are some forms
that take some technical training to understand, are they not?

Ms. Gwendolyn Johnson. But I would also add, Mr. Chairman,
that nurses working outside of hospital situations do have to fill
out a lot of different forms.

Chairman Stark. In home health care?

Ms. Gwendolyn Johnson. In home health care, in offices.

Chairman Stark. We have a lot of entrepreneurs in home health
care, not doctors and hospital administrators, we have these guys
who may sell a lot of unusual services and they may need forms
for a lot of different reasons, but — OK Well, if you would do me
this favor, you are working now as a staff nurse, send me the forms
you fill out and mark for me those which you feel are useless.

Ms. Gwi<:ndolyn Johnson. Absolutely.

[The forms were submitted to Mr. Stark and will be retained in
the committee files. I

Chairman Stark. I would like to see that. I think that would be
very helpful.

OK Gentlemen, nobody likes the premium caps.

You don't, do you? And you don't?

Dr. Todd. No.

153

Chairman Stark. I am going to ask you in any form that we
know of what, scoreable, accountable system would you prefer on
the private sector side to slow down the rate of growth which I
think you both agree we have to do in spending, ^^^ich would you
take, of those systems that are out there?

Dr. Todd. We would certainly stand behind the ability to sit
down with those who are going to be regulating the payments or
making the payments and try and look at what is the need out
there in terms of appropriate care for patients, how it can be effi-
ciently and effectively given, and what new technology is going to
add to this and how that can be best used, and at the end of that,
a series of negotiations, conversations, call them whatever you
want, come out with something that gives us an expectation of
what should be spent in the ensuing year.

Chairman Stark. Do you know of any format, any system that
does that now?

Dr. Todd. The physicians in Canada have an opportunity to sit
down with their government and negotiate the budgets for the fol-
lowing year. The doctors in Germany are able to sit down and ne-
gotiate with their Federal government, and where we would differ
with what the Canadians and the Germans do is that at the end
of that time if the budget was blown, find out why. Don't put in
place, fix in place, the inequities and the shortcomings of the sys-
tem by just ratcheting down the budget the following year.

Chairman Stark. I am not asking you for an endorsement, but
haven't we come about as close to that in the system we have now
in Medicare as any other system that at least exists in this coun-
try?

Dr. Todd. Well, with all due respect, Mr. Chairman, no, I don't
think you have. I think

Chairman Stark. Is there one that is closer?

Dr. Todd. We appear before this Committee on numerous occa-
sions, we have numerous discussions, and then we have to wait
and see what the final result is, and then we have to go through
the reconciliation process which sometimes also changes our under-
standing.

Chairman Stahk. They do the same thing in Germany. I am just
saying there is no other system, in which you negotiate and end up
with a set of fees in this country? I don't know of one.

I am not asking you to endorse that. I am just saying I don't
know of any other structures, save the salary structure at an HMO,
where we do it. Now, what your answer sounded to me like is we
ought to think up one, but I don't think we know one. I am asking
seriously if there is one in use in this country that you think looks
better than any other. I don't think you have one, do you?

Dr. Todd. And I would agree we probably don't have one at the
moment, but it doesn't mean we couldn't develop one.

Chairman Stai^k. Could we build on the Medicare structure?

Dr. Todd. To a degree.

Chairman Stark. Would you pick it as a starter or would you
pick another one? I am saying this because you know I'm saying
it, and I think that is where we have to start because it is the only
system where we have some kind of a structure in place.

154

Dr. Todd. I think what we are trying to move for in health sys-
tem reform is some degree of predictability, stability, understand-
ing of each other's roles in the process, and that that really does
take a great deal more of discussion and a better understanding
when you leave the room of what the rules of the game are than
to have them constantly changing.

Mr. Davidson. Mr. Chairman, we have the potential.

Chairman Stakk. You have the Maryland system, right, which is
the best? Isn't that the best in the country?

Mr. Davidson. Well, first of all, let me say a few things about
Maryland since Mr. Cardin praised us so well.

Chairman Stark. Oh, you are brave.

Mr. Davidson. I would much prefer to say this in his presence,
but Sean is here and he will cover me. It took us 17 vears to ulti-
mately affect the dramatic rate of increase, and I think it is impor-
tant. We started, well, it is wonderful for Mr. Cardin in come here
and praise us.

Chairman Stark. In Maryland it took 17 years from the begin-
ning of the system.

Mr. Davidson. It took 17 years to achieve the measure of per-
formance that they have today in that State.

Chairman Stark. After they put the system in or including the
time it took to pass the svstem?

Mr. Davidson. From the time ultimate rate authority took place,
which was in 1976, until today, it took that many years, and that
is an important lesson to learn in terms of the proposed arbitrary
cap and how quickly you can get to something, and that was with
a cooperative relationship, all right?

The other important learning, of course, that we had in the State
of Maryland, was that we set out to focus on hospital costs — not
medical costs, hospital costs. We did a very effective job of holding
down hospital costs, but we didn't hold down medical costs.

In fact, the Maryland General Assembly just this past year en-
acted new legislation to begin to look at the regulation — potential
regulation — of doctors' fees which told us that you can control one
sector but you can't necessarily deal with the other side in volumes
of service increased and so forth. The moral of that story, based
back on your question in terms of predicting the future, is that we
couldn't have predicted in 1976 how many years it would take to
get to a particular target.

Chairman Stark. But you had to be below the national average
in each of those years; didn't you?

Mr. Davidson. No, no, we were 26 percent above the national av-
erage.

Chairman Stark. How did you get your waiver? I thought im-
plicit in the waiver was that you were below the national average.

Mr. Davidson. In terms of our rate of increase, but hospital costs
in Maryland in 1976 by case were 26 percent above the national
average.

Chairman Stark. But then your rate of increase was lower. That
is all we are trying to achieve nationally.

Mr. Davidson. Just to give you an idea of timing. The other ex-
ample when you make reference to Medicare is the potential there
for something in the Medicare program. You know, when PPS was

155

enacted in 1983, there were many of us who lobbied to have the
Prospective Payment Commission have more authority with regard
to its recommendations and their binding relationship to the Con-
gress.

What we have experienced is that the Prospective Payment Com-
mission has made recommendations with regard to payment that
by and large we have found to be sound and then you all get in
to the budget morass, as you well know, and ultimately this is a
place that you can scale back, so when you raise the question is
there a potential model that could be followed, PROPAC is a pos-
sible model.

The President proposes the creation of a national commission. If,
in fact, you had a national commission of seven people who were
judicial — then we could help learn to do that.

Chairman SXAJiK. Do you know how many hospitals would be left
if we had to have a PROPAC appointed by the past 12 years of ad-
ministration and that PROPAC had followed the recommendations
of the previous 12 years of administration? You would be down to
2000 members. Don't always suggest that because we change
PROPACs. In fact, you will remember that this committee in every
one of at least the 8 years that I have been sitting in this area has
had far fewer cuts on hospitals and on doctors than the administra-
tion has recommended, and that was done with the bipartisan sup-
port of my minority side so that I would say, quite frankly, this
committee, Congress, has saved your butt.

Mr. Davidson. We should turn it around, Mr. Chairman, and say
that needs to be binding on the President first. But the point is
there is a possible model with response to your question, and all
kidding aside, I think you know how we feel about your role in
being an advocate for protecting hospital payments.

You have done that regularly and consistently, and we are very
much appreciative of you and this committee. That is a subject that
we have not ignored and there are possibilities of thinking through
ways to have a government model evolve that does make some
sense. It has to be binding on more parties, however.

Chairman Staj^k. Quickly, what do you guys think? Do you more
or less support the idea of competing networks of health care pro-
viders in a little bit different way than the administration plan.
How do you see the trauma centers and cancer centers and teach-
ing centers and children's hospitals fitting into that?

Mr. Davidson. I think when it comes to trauma, teaching and all
the rest, we have got to find a way to carve out and subsidize those
unique special services that perhaps ought to be outside the system
and give those institutions more of a level playingfield so that they
can be part of a network. I think consideration is being given to
that.

It needs to be fleshed out a great deal more. It is essential that
we maintain those services in communities. If we lose those, we
will never regain them.

With regard to children's hospitals, I think we need to look at the
same level of integration and examine that very carefully. There
are a series of institutions when you look at rehabilitation and all
of the rest.

156

We have our own hospitals all talking to each other and trying
to think through that. I must tell you there is not a simple answer
to that at this point in our history, but obviously we are going to
be pressed to come up with some strong recommendations to you,
and we will.

Chairman Stark. One for both of you, now. I will ask Jim first.
In the President's plan, and indeed in the Jackson Hole plan, ev-
erybody talked about competing groups that are one way or an-
other going to save money. None of them are going to save money
by setting fees. They have all got some structure up there that is
going to appear whether it is utilization or whether it is urging the
members to exercise more, quit smoking or pray, whatever they
have in mind, but my guess is that if you have multiple plans,
every plan save Dr. McDermott's has in mind multiple plans, that
each one of them is going to have a separate and distinct and
unique utilization qualification review plan because that is all they
have to sell.

They have price negotiation and they have a minimum stack of
benefits. The only way they can do it is by having a different set
of gatekeeper standards. I am not sure that that makes your issue
of the hassle factor or setting standards of quality any easier.

Do you want to comment on that?

Dr. Todd. No question that there are many ways of going at sav-
ings and one is strict utilization review which looks at the dollars
instead of the care that is given. But you begin to look at what
sorts of care we are giving to whom and under what circumstances
the more appropriate use of medical technologies. I am sure you
have heard it before, these groups that seem to provide the best
level of care in which the providers are the happiest and which the
cost seems to escalate the least are those organizations that are
run by physicians. And you have the Permanente group. Mayo
Clinic, you have Virginia Mason, and you can replicate that over
and over again.

And I think the profession is committed to looking at what they
are doing, how much they are doing it and trying to make sure that
the care they give is going to be beneficial. If you add to that the
other cost-reducing factors in society, professional liability reform,
administrative simplification, it can work.

I think you have seen that competition can work in the sense
that health system reform has been going on in this country

Chairman Stark. That isn't what I asked. What I asked you is
do you think that having multiple plans will simplify the doctor's
role in terms of dealing with a variety of utilization reviews and
rules under which the physician will be operating?

Dr. Todd. I think in all honesty it depends upon who controls the
plan.

Chairman Stark. There will be five different ones. CIGNA will
control one. Medicare may control one, there may be a Kaiser that
may control one. Any alliance or any HIPC will be studied to see
what kinds of results they provide to their beneficiaries, but each
one will have a separate set of rules and regulations under which
your Members will operate.

How can that be simpler?

157

Dr. Todd. Hospitals have rules and regulations under which they
operate and I think that the secret is allowing the physicians to es-
tablish those rules and to look at what it is they are doing instead
of having somebody with a calculator telling them where they have
to come out at the end of the day.

Chairman Stark. That is always simpler, I agree. That may be
the answer. What about the hospitals? Is it going to be simpler,
five or six payment structures?

Mr. Davidson. You talked earlier in the hearing today about
managed care.

Chairman Stark. I am talking now about structure.

Mr. Davidson. This is an important response to your question in
terms of the debate about managed care. Most of the managed care
in this country is point of service cost control and things really
aren't managed as such with somebody in charge of your care fo-
cusing on medical outcomes, ultimately changing your health sta-
tus and all the rest.

When we talk about developing new delivery systems, they are
different than the kinds of things that are necessarily embodied in
the Clinton plan and that is that we think they have to be — com-
munity-based, community-owned, a community-based accountabil-
ity system that looks at performance standards.

Chairman Stark. I hear you. If you have five different plans in
any community where your members are operating, how can that
simplify your admission procedures and procedures under which
you discharge patients? You know you are going to get paid, proce-
dures under which you allocate care to patients. Is their anything
in that that makes it more simple than what you are doing today?

Mr. Davidson. Let's take a for instance. Any given day in a hos-
pital today there are 150 different utilization review forms being
used even in nursing here.

Chairman Stark. And there is no change in the President's plan
from that?

Mr. Davidson. I think we will see a major restructuring of all
of that. I think we are going to see a major consolidation of insur-
ance, ultimately with an alignment with plans. We are going to
have fewer players. You have an opportunity to establish standards
of performance and Federal guidelines.

Today we can't get the insurance companies to agree on one form
versus another so we get whipsawed in that process.

Chairman Stark. Do you think five insurance companies will
survive?

Mr. Davidson. I don't know what the number will be. It will
probably be 150 by the end of the decade for purposes of conversa-
tion.

Chairman Stark. That isn't a very good conversation. Then you
have still got your 150 plans. What does that simplify for you?

Mr. Davidson. But in terms of their market penetration around
the country you would have that consolidated pretty dramatically
and you could establish Federal guidelines to develop some uni-
formity here. We don't have uniformity.

Chairman Stark. What did you say? Federal guidelines? Shame
on you. You believe in term limits for association executives? Fed-
eral guidelines? Mr. Grandy.

158

Mr. Grandy. Thank you, Mr. Chairman. Before I left the com-
mittee when the chairman was talking to the last panel, he was
making a fairly convincing argument about the cost savings that
have been achieved through Medicare for the last 10 years, and nu-
merically the facts are on his side. If cost containment were the
only goal in health care reform I would say this would be a fairly
easy lift for this committee and the Budget Committee, but the
whole question here is value, and that is a question of cost.

That is a function of cost plus access plus quaHty. Mr. Davidson,
I would assume your association has already run the numbers on
what the $56 million in Medicare cuts did to your association mem-
bers, particularly in manpower shortage areas such as rural and
inner cities and are also now crunching the numbers on a prospec-
tive 125 billion dollars' worth of cuts.

The Iowa Hospital Association figures show that the previous cut
figures out to about $763 per patient loss and that is before you
even get to health care reform.

Can you comment? Because I know all of you on the panel have
said any kind of health care reform should include Medicare. We
know that there will be cuts in Medicare to help pay for access
while maintaining quality. Knowing that, how do you incorporate
Medicare into a national health strategy through a system of, let's
say, penalties and incentives that does not I think at this point de-
ceive the public into thinking we can have a whole brand-new
health care system that is going to hold Medicare harmless and say
there is no risk selection?

Mr. Davidson. The important point I think that you make in
raising the question, Congressman, is that you can't really reform
a delivery system unless you have everybody in and to leave Medi-
care out in essence leaves out 30 percent of the patients that we
treat and many of your communities may represent 50 percent of
the patients.

Mr. Grandy. I think the figure is 55 percent. I am looking at the
data of the Iowa Hospital Association.

Mr. Davidson. Combine that with Medicaid patients and you
have a system where we continue to cut back on payment and the
hospitals are expected to do more. They try to shift the costs, but
there is nobody to shift them to. We think that as we move forward
looking at these numbers and, of course, the number of $124 billion
from this point forward still keeps Medicare in the same program,
so it means that 80 percent of the dollars out of that $124 billion
are going to come out of reduced payments to hospitals and we
don't even change the way we run the Medicare program.

We say you have got to start with the Medicare change. It should
be done on the basis of incentives, because I think all of us under-
stand the politics of how we may quickly frighten senior citizens
that any kind of a change will be something that they can't toler-
ate. We have to demonstrate that there are opportunities in
change, and instead of just expanding new benefits for everyone,
we have to think about expansion of benefits for those who enroll
in new organized delivery systems or reduction of copays and
deductibles.

Mr. Grandy. That leads me to, and this is a loaded question be-
cause I want to refer to the bill Mr. Cooper and I introduced yester-

159

day — we don't fully embrace a quantum change in Medicare. Con-
trary to the administration, which sweetens the pot for Medicare,
I think, as kind of a nostrum for the costs that will come out of
the program, we do provide an incentive for Medicare beneficiaries
to buy out and buy into accountable health plans, the idea being
that they could then access a prescription drug benefit.

Is that the kind of incentive that you think health care reform
ought to encompass and if so, how do we expand on that to achieve
the goal we are trying to achieve?

Mr. Davidson. We certainly think you have to have universal ac-
cess as well, and at the same time be moving the Medicare bene-
ficiaries parallel to the expansion to coverage for the 37 million un-
insured Americans.

Mr. Grandy. Does that include, by the way, probably moving
more people from fee-for-service into managed care models?

Mr. Davidson. Organized delivery systems, yes. Organized deliv-
ery systems can still have fee-for-service.

Mr. Grandy. I understand. But it does involve substantive
change in thinking of the Medicare beneficiary population now.

Mr. Davidson. We think we should be moving Medicare to a
capitated payment system, as well.

Mr. Grandy. Do you have any kind of preliminary judgment on
a more market-driven managed competition svstem similar to what
we introduced yesterday? I don't know if the AHA has taken a posi-
tion on that or not. This is closer, of course, to the original Jackson
Hole market driven system that is really more competition than
management, as opposed to the Clinton plan, which I think is more
management than competition.

Mr. Davidson. We would say that our focus is more on collabora-
tion than — we talk about managed competition. We think the focus
ought to be on managed collaboration. If you get people to work to-
gether — this is part of what is wrong with our svstem. Most of us
don't have anybody in charge of our care. We make decisions about
what plan to get into, pick our own specialists. There is very little
coordination in many cases, and so the focus ought to be on collabo-
ration among the players to move people to the right settings, to
help guide them through the system, to give them some advice as
opposed to just competing on the basis of price. That goes back to
your point of value.

We don't think this whole issue is a price question. We can keep
spending a lot of money and not improve the outcomes.

Mr. Grandy. We have. That is the system. If we do nothing we
can be guaranteed of that outcome.

Mr. Davidson. So we think you do have to focus on the collabo-
rative initiatives.

Mr. Grandy. You are talking about more than antitrust reforms.
You are talking about markets as well, right; and health plans
being offered competitively.

Mr. Davidson. But with a local orientation. Our concern is that
in these health alliances, as we move in that direction, we have
protections, that they don't become fly-by-night insurance mecha-
nisms run out of tall buildings in New York with computers and
discount contracts. We think the key to the future is what you do
in every community, forcing people or giving them incentives to

160

work together — doctors, long-term care institutions, public health
agencies employers, insurers — we haven't had that going on in our
community over the past decade because we were rewarded for a
different behavior. So we think you have got to restructure the in-
centives to change everyone's behavior, including individual respon-
sibility, as well, and I think your proposal starts to take things in
that direction.

We would just wish that you would move to universal access in
a quicker way and ultimately get Medicare in there in a faster way,
as well.

Mr. Grandy. Well, that is on the table. I guess the reason for not
doing it is a kind of fiscal caution that comes with trying to get ev-
erybody in too fast as a price everybody can afford and that is
something the administration is dealing with as well. So if we can
find a way to split that difference, we can up the timetable.

Mr. Davidson. We would be happy to work with you on that.

Mr. Grandy. Thank you. Thank you, Mr. Chairman.

Chairman Stark. Who is next here. Mr. McCrery.

Mr. McCuERY. Thank you, Mr. Chairman. I wanted to get back
to the question of where we are going to find the resources, money,
call it what you will, to expand access, so to speak, to everyone,
and by expanding access to everyone let me clarify.

I am of the opinion that everyone in this country has access to
the system today. They may not get the same service that every-
body else gets, but I don't know of anybody who is dying on the
street not getting health care. People get health care. They may not
pay for it and the hospital has to shift those costs to the people
who can pay, but, generally speaking, I think everybody has access
to the health care system.

They are not insured, but they have access. What you are talking
about is insuring that everybody has insurance, that everybody is
going to be able to pay for the access that they get. I see you shak-
ing your head. You think there are people dying on the streets that
don't have access?

Mr. Davidson. If I led you to that conclusion, I want to correct
that conclusion. Not all Americans have access to health care. We
take care of them in emergencies, but there are millions of people
who defer any treatment because they don't have an ability to even
present themselves or they don't want to be dehumanized by ask-
ing them the first typical question, which is how do you plan to pay
for the care, because we have to do that.

On the one hand we do take care of people at the point of emer-
gency, but there are a lot of people who aren't getting care because
they don't have any health insurance. The part I was nodding on
is that we can provide all Americans with health insurance and
they still may not have access. Poor people have a Medicaid card
in the Mississippi Delta, but they may not have access to anything.
Having health insurance as a plastic card doesn't necessarily get
you anything.

Part of what we are saying is that it is essential that we put to-
gether organized delivery systems in communities with responsibil-
ity for the people in the communities and that we assume some
risks for taking care of them. Then we will reach out and really as-

161

sure "access." And we haven't had those kinds of incentives at this
point in our history.

Mr. McCrery. What you are saying, I think, is that we need to
come up with a better way to dehver health care to everybody in
the country so that everybody gets quahty health care in this coun-
try; is that generally correct?

Mr. Davidson. That is exactly what we are saying.

Mr. McCrery. If everybody is not today getting quality health
care then it seems to me there is going to be a cost associated with
delivering quality health care to all those people who are not now
getting it. Is that correct?

Mr. Davidson. I certainly agree with that.

Mr. McCrery. Then where are we going to get the resources to
provide those people with the quality health care that they are not
getting today?

Mr. Davidson. Well, there are two kinds of responses. Over time
we will have an ability to deliver what it is that we do today much
more efficiently than we now do if you ultimately put together com-
munity-based organizations with greater accountability and over-
sight. The other response is, if we determine that we want to have
universal access and we are really serious about that and commit-
ted, then we are going to have to face tough choices.

One choice this committee is being faced with is whether to use
an employer mandate to ensure that those people who are working
who don't have health insurance will get it. We are looking at sin
taxes and I think we can begin to look at a lot of things that are
options for financing. We can look at new kinds of copays and
deductibles in terms of looking at people on the basis of their in-
come.

The President's proposal is calling for the expansion of care to re-
tirees. There is a serious question about whether we could afford
that or whether that ought to be income adjusted. It seems to me
there are a lot of ways to turn the knobs, but the most important
question is what is our commitment to achieving the goal of univer-
sal access? If we don't have a commitment to that then we won't
find new ways to finance it.

Mr. McCrery. The bottom line is it will take some financing and
Ms. Johnson, your association supports the Clinton health care
plan so maybe you can explain to me what the previous panel
wasn't able to explain, how the Clinton plan is going to cut Medi-
care $124 billion, Medicaid $114 billion, cut the deficit by $91 bil-
lion, and provide universal access to everybody in this country de-
fined, I think, as Mr. Davidson defines it, quality health care — I
will go further and say a modicum of health care for everybody that
is basically the same. How is that going to happen?

Ms. Gwendolyn Johnson. I am not sure I can completely an-
swer that question, but I think you need to start with the fact that
the Clinton plan changes the health care system from an illness
model to a wellness model. One of the things that the Clinton plan
proposes is that we reach people through the use of primary and
preventive care before they encounter expensive health problems.

I think certainly looking at those things that contribute to some
of the major health problems, such as alcohol and tobacco, and in-

162

creasing those excise taxes would be one very appropriate funding
mechanism.

I think the strong focus on the use of cost-effective providers,
changing the focus from illness to wellness so that there is less cost
involved in taking care of people before they become extremely ill
will go a long way in terms of making a difference, in terms of fi-
nancing. Again, I think the whole issue of access is very, very im-
portant because now the extreme costs that we are seeing are asso-
ciated with that lack of universal access and the fact that people
are very ill when they enter the hospital setting.

Dr. Todd. If I could. Congressman, look within the system. None
of us at this table are qualified to sit and crunch the numbers, but
we are qualified to look and see what delayed care costs this coun-
try in terms of people coming late to receive their care. If we could
have more emphasis on prevention, immunization, we might well
see some savings there.

The profession liability issue hasn't even been touched in terms
of savings. There are tremendous savings to be gained there, the
issue of overbearing regulation that needs to be reduced and most
importantly the issue of economic discipline that says everybody
ought to suffer the consequences or benefits of their health care de-
cisions — and we know when patients are asked to contribute some
degree of a copayment at the time of service, health care expendi-
tures can be reduced without affecting the health of that popu-
lation. That has been demonstrated. So there are many things
within the system and depending upon how far the reform goes will
help you decide how much savings you can get from those.

Mr. McCuKUY. I am certainly hopeful that we will get huge sav-
ings from preventive care, but I am rather skeptical of that. We are
going to get some immediate benefit, but what of the long term?
Eventually those people are going to get real sick and require care.
I am not sure about the long-term picture that you are talking
about. Perhaps immediately you will see savings, but I can't imag-
ine that it is going to over the long haul save that money in the
universe of the system.

I just want us to be honest about where we are going and it
seems to me that many people who come before this committee and
the administration are saying basically we want a health care sys-
tem that delivers the same health care to everybody, an egalitarian
system of health care. If that is the case, why don't we just do a
single payer system, just tax everybody and deliver the same
health care to everybody? Why jump through all these hoops with
managed competition, whatever fancy words you used, Mr. David-
son, to say managed care.

Give the same health care to everybody and the fairest, easiest
way to do that is just to tax everybody, send them into the same
system, deliver the same health care to everybody, and you get
paid the same for every procedure for every person, no matter who
they are, where they come from.

Dr. ToDi). If you do that, the quality of health care doesn't con-
tinue to increase. You know the successes of the American health
care system in many respects has been based upon the professional
competition that has been going on between facilities and centers

163

and physicians and hospitals. It is that competition that keeps
progress moving.

If you go to a single payer where the rates are determined, what
impetus is their for innovation? There is none.

Mr. McCrery. I don't know but everybody gets the same care
and that seems to me to be what you all are saying, everybody de-
serves the same care, so let's just do it.

Mr. Davidson. Everyone deserves equal access to some kind of
a minimum set of health insurance benefits and we all know that
the quality of the care will vary geographically and by community
and so forth. If there is something egalitarian, here it is, that all
Americans ought to have universal access. And I think when you
get past that, the changes will be striking in different parts of the
United States based upon capability, and I think we will always re-
serve an individual's right to something other than what may be
provided in any kind of a basic benefit plan.

I think we found that out in the Nations that have some kind
of national health insurance.

Mr. McCrkry. You talked a little bit about utilization and how
the Medicare system, as it currently operates, encourages
overutilization. Would you expand on that a little bit? What do you
mean by that?

Mr. Davidson. In my remarks I was making reference to the
forecast of reductions in the Medicare pro-am without changing
the way the Medicare program functions in terms of the financial
rewards. In other words, the payment system is still on a per ad-
mission, per physician office visit which tends to provide incentives
to drive up volumes not because there is malice, but that is because
they are what the incentives are. They are perverse incentives.

And what we are suggesting is, if you are on some kind of fixed
payment arrangement you will have a different incentive; that is,
to prevent expensive hospitalization if it is preventable, to ensure
that we have appropriate levels of physician visits, but only what
is necessary, and that there are alternatives to treating patients.
So it is back to delivery system changes that can, in fact, deliver
that care better.

Our system rewards consuming more units of service. It finances
the care from a lot of specialists.

Mr. McCrery. How would you change that?

Mr. Davidson. I am suggesting that we have an organized deliv-
ery system with fixed levels of payment where there is coordination
within the hospital, if you are even admitted to the hospital, where
someone is the gatekeeper and follows your care and consults with
you and coordinates. We think that could be a lot more efficient
than what we have now.

Dr. Todd. It would be nice if it could be that simple. But there
are no benign incentives and, yes, you can look at fee-for-service
and say it tends to be inflationary. We can look at managed care
or capitation and say it tends to skimp on care. Neither one may
be true, both may be true, but in a competitive system we ought
to be providing information to the persons who are going to be
using these systems as to the pros and cons -^nd the costs involved
and let them make the decision as to where they wish to receive
their care.

164

Mr. McCrkry. Is that what you meant, Mr. Davidson, that to
change the incentives of Medicare will just capitate it?

Mr. Davidson. Yes, sir.

Mr. McCrery. Thank you.

Chairman Stark. Mr. Cardin.

Mr. Cardin. Thank you, Mr. Chairman. Dr. Todd, I understand
in response to a previous question you did have something nice to
say about the Canadian model. I certainly favor an American
health care system and want to see us build upon the current sys-
tem. However, I am very troubled by a sentence in your formal
statement.

Let me just read it and ask you a question about it. You say,
"Nowhere in the world in any kind of system that delivers any
service or good to anyone have such spending controls ever
worked," referring to global budgeting, et cetera. Did you mean to
imply that most countries do not use some form of global budgeting
in their health care system?

There are some very fine systems around the world. You weren't
trying to infer that global budgeting is inconsistent with a quality
health care system?

Dr. Todd. Global budgeting tends to fix in place the inequities
and the shortcomings of the system that is already there with con-
tinued ratcheting down, which is inevitable as technology in-
creases, population increases, expenditures tend to go up. But look
around the world today. Canada is in the process of reevaluating
its system, Sweden is in the process of reevaluating its system and
Germany is in the process of reevaluating its system and they are
all tending to move toward privatization rather than more govern-
ment intervention. We don't have a good model.

Mr. Cardin. But each one of those systems has some form of fi-
nite resources that are in health care allocated through some meth-
od, some more structured than others, some more government-in-
volved than others. In fact, I don't know of any other industrial na-
tion that has a health care system that doesn't have some form of
budget discipline to it, do you?

Dr. Todd. No, and we firmly believe that this system ought to
have budget discipline to it also, but it ought not to be tied to some
arbitrary level of spending. It ought to be tied to appropriate care
being given in appropriate settings to patients who need it.

Mr. Cardin. We are in agreement on that point. I wanted to
make sure that we had that on the record. You are not testifying
against budget discipline, but a rigid system that could compromise
the services being given throughout the regions of our country.
That is a better way of framing that concern.

Dr. Todd. That is correct.

Mr. CAitDiN. Mr. Davidson, I understand from Sean that you did
respond and protect Maryland's system quite well. If I understand
from your formal comments, you think the President's package
would be strengthened if Medicare were part of the rules that
apply to all the other reimbursements.

Mr. Davidson. The whole notion of delivery system reform as a
way to move will be improved by including Medicare; keeping Med-
icare on the current fee-for-service arrangement has the old incen-
tives and we are trying to move the rest of the system to a system

165

designed to respond to different incentives and ultimately that be-
comes self-defeating. If you really want to change the way you de-
liver health services in this country by getting people into inte-
grated financing and delivery systems, you can't leave senior citi-
zens out, and that is the point.

We think that the Medicare program could run a lot more effi-
ciently than it runs now and that it ought to be included in reform.
That is not to say that you have to buy care through the alliances
and all the rest. Medicare could be its own alliance. There are a
lot of ways to look at that. But the fact is that there ought to be
incentives to move Medicare beneficiaries into integrated delivery
systems.

Mr. Cardin. You are familiar with how hospitals have organized
around the Nation. Would it be easier if Medicare were subject to
the same set of rules, rather than having a separate set of rules,
if you are trying to work within a finite amount of resources that
are available to deliver hospital care in a community?

Is it more difficult having a separate set of rules for Medicare or
is it easier, knowing what Medicare reimbursements are going to
be, if you are trying to put together a system locally to deal with
hospital costs.

Mr. Davidson. It is more complicated. If you are trying to move
to a new world and you are still working in a system that is in the
old world and is going to continue to oe there, that complicates
your ability to achieve this new world objective, absolutely.

Mr. Cakdin. Thank you. Mr. Chairman, I will stay within my 5
minutes.

Chairman Stark. Mrs. Johnson.

Mrs. Johnson of Connecticut. Thank you, Mr. Chairman. I am
sorry I missed your presentations, but I have a couple of questions
I want to ask you. There is so much agreement on what we are try-
ing to achieve, but the means are very controversial and there is
a lot of concern that some of the means in the President's bill, actu-
ally are totally counterproductive in terms of the goals.

I, too, Mr. Davidson am very concerned with and very committed
to community-based health care. If reform doesn't mean that com-
munities get more involved in planning that network of care that
will really guarantee a coordinated system and the kind of com-
prehensive care that we are all hoping we get out of reform, then
we will have failed.

One of the reasons I am so concerned about the President's pro-
gram is I think giant health alliances and global budgets and pre-
mium fixing and that kind of mechanism that we like in Washing-
ton is actually very antagonistic to the people in the real world
doing what they need to do for their health.

A perfect example is the clean air regulations. We are in the bi-
zarre position of forcing people to buy different kinds of fuels, to
dump their cars, to do all kinds of things not because they are in
an area that produces a lot of pollution, but because some other
area near them does so. So Washington has a hard time actually
assuring that changes take place in a way that are good for the in-
dividual Americans in our Nation and for the communities.

I would like to know from you, Mr. Davidson, what are the incen-
tives that are most important to assuring that health care reform

166

does encourage community care networks as opposed to insurance
companies driving the concept of care networks and, doctor, from
your point of view what is going to really assure that the end result
of reform is physicians working with other health professionals,
physician assistants, nurse midwives, psychiatric social workers —
what is going to assure that they are going to look at those things
and create the kind of coordinated system of care that won't just
assume, as we have in the past, that if you have a heart condition
you must go to a cardiologist; if you have a headache you must go
to a neurologist. So both are similar kinds of issues. How, from
Washington, can we drive a health care reform initiative that will
allow people and communities the power to assure that they get
quality care at the lowest cost?

Mr. Davidson. It seems to me you have to set up a system where
Washington provides the incentives to the extent they can.

Mrs. Johnson of Connecticut. What are the key incentives?

Mr. Davidson. First, to move to capitated payment, capitated
payment arrangements.

Mrs. Johnson of Connecticut. What is the evidence that
capitated payment alone is better than fee-for-service? Aren't we
seeing a great variety of systems that are cost-effective and do we
really want to define from Washington that capitation is the right
answer?

Mr. Davidson. Capitation is a way to provide the incentives that
ultimately put people together in integrated systems at the local
level. There is evidence that shows when you begin to evaluate
managed care that the current form of managed care around the
country by and large is point of service cost control, not really inte-
grated delivery systems.

Research shows that you get much more effective results with
closely integrated delivery systems and we ought to encourage their
development at the community level because then following that
you can build in mechanisms for public accountability, and we are
afraid that if you don't have local accountability things will get
lost.

Mrs. Johnson of Connecticut. That is very interesting because I
have maintained that the issue of limiting tax deductibility so you
focus the competition between systems on cost-effective care rather
than the government deciding that capitation is the payment sys-
tem that works is not only safer but more powerful. I hope we can
talk about that

Mr. Davidson. Certainly, but that is an incentive to begin to
move you pretty quickly in that direction. Also, if you have a pre-
mium structure that ultimately encourages people to move into in-
tegrated delivery systems there is some incentive.

In other words, if you begin to look at all the ways that you
structure these things, you can build an incentive system. You've
got to have insurance market reform that ultimately will eliminate
the skimming and we have talked about that. There seems to be
agreement on that one at this point. It seems to me when you do
that you then set up a set of incentives that will take you in that
direction as well.

Mrs. Johnson of Connecticut. Of the things you have mentioned,
having tax deductibility limited to, say, the average of the five low-

167

est cost plans gives you premiums that drive cost- effective systems
and integrated care without limiting you as a capitated payment
would. A capitated payment set from Washington isn't going to be
a lot different than a premium set from Washington. I look forward
to further dialog

Mr. Davidson. You will see a lot of local negotiation. This takes
to the question of the alliance and how big it ought to be. We think
they ought to be kept small at the outset and see how they work.
Lets not deny people the right to ultimately negotiate some agree-
ments locally between employers and organized delivery systems.
That is what is going on across the country now. There is quite a
bit of activity. We ought to encourage that and stimulate it.

Mrs. Johnson of Connecticut. Should we give local communities
the right to apply for the amount of money associated with their
Medicaid-eligible population and give them the right to plan a com-
munity response to universal access using those Federal dollars?

Mr. Davidson. I think we ought to encourage all kinds of innova-
tive approaches to ultimately move Medicaid and Medicare bene-
ficiaries into organized delivery systems — we can do that today. We
don't have to wait for anybody to pass a new law.

Mrs. Johnson of Connecticut. I tried it this year in the commit-
tee, but it didn't work.

Mr. Davidson. We have been encouraging the Health Care Fi-
nancing Administration to begin to move in that direction. I think
the administrator is convinced that that is an initiative they want
to take, so before we even enact anything we can begin to make
those things happen.

Dr. Todd. Let me, if I may give, the AMA's answer to the basic
question you asked, can this be controlled by Washington. Our an-
swer is absolutely, no, it cannot. Health care, like politics, is local.
It is given one doctor and one patient at a time. One size does not
fit all.

We would say that in our order of priority we have to guarantee
access. We have to guarantee quality. We ought to guarantee
choice, because after all that is what makes individuals differ from
geographic area to geographic area and there has to be economic
discipline, but everybody has to participate in that economic dis-
cipline, not just the insurance companies or the providers.

Last, you mentioned another subject which I think is important
in terms of how well we are using our mid-level practitioners. We
probably haven't done a good job at that in the past. We should be
entering the age of cooperation where there are possibilities for
groups to join together that have not in the past and in the process
effect continuing savings and efficiency in the system.

Mrs. Johnson of Connecticut. Dr. Todd, how important is mal-
practice reform to using physician assistants to internists referring
less often?

Dr. Todd. It is probably one of the most important not only to
doctors but to patients. The doctor-patient relationship is suffering
as a consequence of professional liability threat all the time. Pa-
tients in some areas aren't able to get the services locally they
might need because physicians are withdrawing from providing
some of the high risk procedures. When you see the number of phy-
sicians that are being sued year after year, you know they are not

168

all that incompetent. You know they are not all that careless. It is
the system.

To add to your concerns about where savings come we estimate
from defensive medicine that we could probably save in the neigh-
borhood of $15 billion a year, but more importantly an independent
agency did a study and they concluded the savings could be as
much as $36 billion over a 5-year period. So professional liability
tort reform is essential, particularly if you expect physicians in this
country to only provide necessary rational care. They cannot take
the risk of using clinical judgment until they have some idea they
are going to be protected.

Mrs. Johnson of Connecticut. In other words, it underlies the
success of the other reforms?

Dr. Todd. Absolutely.

Mrs. Johnson of Connecticut. Thank you. I thank the panel for
your discussion today.

Chairman Stark. This is a little off the topic, but it is something
I have discussed with Mr. Davidson and Dr. Todd separately. On
the off chance that these plans which suggest that this can all be
accomplished without any revenues aren't successful in finding this
medical care fair who is going to put the solution under our pillow?
We have been talking about a variety of ways to raise the money
and, frankly, I don't think there is anything new.

The real issue is going to be how we are going to sell whatever
revenue raiser we come up with, whether it is a mandate on busi-
ness — somebody will call it a tax — my opponent, if nobody else does
it. I have often suggested, and you might comment on this, the idea
of what would be a sales tax, a gross receipts tax or some other
kind of charge on all providers, the proceeds of which would go into
a trust fund and be used only for uninsured low income.

Some of your members, Dick, do that. New Jersey and maybe
Florida — I am not sure whether they do it happily, but it is not un-
known to the hospital industry. Somebody indicated there was a
State that tried it with physicians. I will stay silent as to the
amount. Say 10 percent of $140 billion would pay for it in a New
York minute, but I don't think that we are going to get anywhere
near that. The reason that is good is because the public, frankly,
would be confused. They will think the rich hospitals, the rich doc-
tors, the rich pharmaceutical companies are getting hit and we are
not. We know that is not true, they would ultimately pay some,
whatever their share of the payment the President wants them to
bear would be. Is that an area in which we could negotiate?

Mr. Davidson. Mr. Chairman, we can search every which way
from Sunday to find a new base for taxing and if you talk about
taxing hospitals ultimately the public pays.

Chairman Stark. But you get it all back. You understand that.

Mr. Davidson. I don't know that to be so.

Chairman Stark. I just told you. It goes into a medical trust
fund. It can only be spent for medical care. Basically it would come
back in the form of, I would presume, hospitals helping to eHmi-
nate uncompensated care and bad debt.

Mr. Davidson. The question has been raised before, whether, in
fact, there is a windfall, that if you ultimately have universal ac-
cess, is there a windfall to hospitals.

169

Chairman Stark. I just asked if this was a

Mr. Davidson. The fact of the matter is that if we are paying
for care that we didn't pay for before, most of that care is provided
by institutions that have very low or negative margins. So ulti-
mately if you compensate them and think somehow there is a
windfall and ultimately we can recoup it, it doesn't play out that
way — it really doesn't.

Ultimately, the public is going to pay for it in one form or an-
other. It is a legitimate public policy question to raise, Mr. Chair-
man. We would oppose it.

Chairman Stark. It isn't a public policy. It is a political problem
in how do you sell a tax to get enough votes to do it? The only
thing that has any interest to me in this idea is that it might be
a way to get 218 votes in the House and 50 votes in the Senate
to raise $20, $30, $40, $50 billion, which would all be spent in med-
ical care. The savings that we would be collecting largely would go
to General Motors, General Electric — those companies that have
been paying high generous benefits over the years stand to be the
biggest savers in most of these plans.

It is hard to get it back from them. There is a good argument
that maybe they have been paying all these years, they should ask
for it back. New Jersey and Florida do it.

Mr. Davidson. We have had it happen in ways to subsidize the
Medicaid program. These were practical actions lor survival.

Chairman Stark. Is that something that would be an absolute
anathema to the hospital industry?

Mr. Davidson. I don't think you can consider it in isolation. That
is the problem. We are talking about revenue caps on the private
side down the road and then you begin to couple that notion with
a taxation thing. I don't think you can talk about any of these ideas
by themselves. I think you have to talk about them in the broad
context of how do we get from here to there. And I am suggesting
to you that at this point we would oppose it, but it is a legitimate
policy question.

Chairman Stark. What would you support?

Mr. Davidson. I suggest that if we have all of the pieces on the
table — they are not on the table yet. I reverse it and say are you
willing to say that we will not have a premium cap as proposed by
Mr. Clinton?

Chairman Stark. If that were my choice certainly not.

Mr. Davidson. Do you have the votes to

Chairman Stark. I wouldn't vote for a premium cap. I think it
is nutty. But I am 1 of 218 needed. My point is I am willing to com-
mit to certain parts of the piece. If everybody has to wait until this
program with infinite variables that are at least three or four di-
mensional is in focus before they will commit to any part of it, then
you are going to wait an awful long time for the plan.

We will at some point have to make certain decisions and I was
asking for your assistance today insofar as you are able to help us.
To comment on one small part of the plan, how do you think the
physicians, would we have a Canadian strike?

Dr. Todd. Physicians wouldn't strike, but a provider tax is really
just a tax on sick people. Eventually it is going to end up coming
out of the pockets of those least able to afford it. You heard earlier

170

today that 5 percent of the population consume about 50 percent
of the health care services in this country. If you run a provider
tax you are taxing about 5 percent of the population.

Chairman Staj^k. However if you have a broad-based tax you are
taxing everybody for that same 5 percent. And because we mostly
pay for our medical care through insurance, I suppose 70 or 80 per-
cent of it, our payment now is spread so that in fact if there was
a tax on doctors, it would be shared by a far broader segment of
the population than just those who are sick because we now, for
the most part, spread that cost broadly across the population. So
it would not just be a tax on that 5 percent, it might be a tax on
only 70 or 80 percent because those who are uninsured now aren't
contributing.

Dr. Todd. That may be true, but you are singling out for taxation
a very select portion of the population.

Chairman Stark. Yes, a very rich portion, the highest paid pro-
fession in the country, the richest industrial section in the pharma-
ceutical area, and very, very substantial not-for-profit institutions
who run a lot of change through their — all I am saying is that
every penny that we single those people out to contribute comes
back to them. Not in the same form — but you could look at it as
a recapturing the cost shifting.

Dr. Todd. If indeed the cost shifting disappears, that may be a
different matter. What you just said is true on the average, but
there are physicians in portions of this country for whom a pro-
vider tax would be an additional burden that they are not being re-
imbursed at the level they deserve or the amount of time and en-
ergy they devote to their profession.

When you say it is the highest paid profession

Chairman Stark. It is the highest paid profession in the United
States today bar none, and that is a fact.

Dr. Todd. I just want to make the point that you are talking
about averages though.

Chairman Stark. You want to get into specifics about high paid
people in the medical profession outside that, bring that average
up? We will talk about $700,000 or $800,000 in salaries and guys
who get fees

Dr. Todd. Some of that wouldn't be there if the Federal Trade
Commission would give us the ability to do some of the things we
need to do and that is why we are asking in any health system re-
form for some antitrust relief.

Chairman Stark. No question you have that. I will vote for it.

Ms. Gwendolyn Johnson. You were talking specifically about
highly paid providers. In one State in the United States, in Ken-
tucky I believe, they are proposing to tax staff nurses in that man-
ner and that is not an income that they are going to see coming
back to them. It would be a question of how you define that kind
of a provider tax, based on what we know is going on in some of
the States in the country.

Chairman Stark. I would have the same. Many nurses make
more than pediatricians. Primary doctors in my area are complain-
ing the nurse gets $76 per house call and he only gets $26 per
house call. But that you can fight out among yourselves.

171

My point is that this was a mere suggestion that once we have
tackled the cigarette industry or the tobacco industry and whom-
ever else we can hit for some contributions whether the providers
might find it enough in their own self-interest to do this as a way
ana all of this is a way to reapportion some of the money that we
are collecting from the high paying people, we can then forget
about the high earners. They are taking a big chunk out of those
fee-for-service physicians that pay more than say an HMO physi-
cians on a salary, take some of that off the top.

Very few doctors get their charges. I am saying no more bad
debts, no more charity care, so that it is conceivable that not all
of a gross receipts tax would be lost, but indeed some of it would
come back in increased gross income. The same would be true for
hospitals and pharmaceuticals. Thev would sell more pharma-
ceuticals. Whether they think it would all come out even is some-
thing you will have to calculate.

To me if you thought you saw a plan that you like and we had
to raise $30 billion, you would be hard-pressed to find a tax. It is
something I hope that you all might consider.

Dr. Todd. If you eliminated bad debt and the cost shifting you
would see stabilization in prices that would perhaps be just as val-
uable to you as a recoupment tax.

Chairman Stark. We are short of dough. We could have the best
plan we all agreed to and come up short, say $50 billion a year,
and that is going to be difficult politically. I am saying to you rath-
er than see a good plan fail, one that vou might really like for want
of $50 billion in taxes because we cant pass one

Mr. Davidson. So we will adjust those proposed Medicare cuts
and we will eliminate that private sector cap — that is the nature
of the discussion that you would have if you were getting into this
and had all the pieces on the table. You are a good salesman, Mr.
Chairman.

Chairman Stark. I am not obviously selling you guys much, but
my guess is that the hospitals aren't going to help us much any-
way, so that is a fair way to end.

Mr. Davidson. You know you don't believe that.

Chairman Stark. Oh, yes I do. Thank you very much.

Mr. McCrery. One point that I want to make, Mr. Davidson
made with respect to the hospitals. He said if you tax the hospitals,
it is really the public that ultimately pays.

Well, in fact, a tax on employers through an employer mandate
is going to be paid ultimately by the public, either in the form of
higher prices for products they buy or in the form of lower wages
to compensate for the increased cost to the employer of buying the
insurance, so I am glad you made that point.

It should be made clear to the public that they are going to pay
one way or another for increased services.

Dr. Todd, you mentioned briefly in your list of things that could
be done to squeeze costs out of the current system copayments and
coinsurance. I would like for all of you to maybe elaborate on that
a bit because in all the research that I have done on cost drivers
in the system, that to me stands out as the most dramatic.

Mr. Davidson talked about incentives in the Medicare system for
overutilization by the providers, but I would submit that the third

172

party payment system that is prevalent in this country — 70 to 80
percent of all of us have somebody else paying our bill — is respon-
sible for overutilization by individuals in this health care system.

Am I wrong? Can you back that up? Do you agree or disagree?

Dr. Todd. Yes, we can give you some objective information in
that regard.

First, from the Physician Payment Review Commission, who
began to study the effect of limiting the balanced billing and the
level of increased utilization that that produced, a study done by
the Rand Institute in California some years ago that showed if you
placed a nondisabling deductible on a prospective patient, that you
could reduce health care utilization by about 39 percent and not
show any change in the overall health of that population, so that,
you know, the economic consequences of health care decisions are
important.

Chairman Stark. If you would excuse me, that same health care
study showed that half of the care that was withheld was needed.

Dr. Todd. That was a different study, Mr. Stark. That study has
been repeated using contemporary standards, and that figure is
clearly in error.

That study was done based on indications that were used in, I
think, 1987 based on 1989 standards, and that is not a fair com-
parison. A repeat study done by the academic health centers has
shown that the unnecessary provision of services is somewhere 7
to 9 percent.

Mr. McCrery. Mr. Davidson.

Mr. Davidson. I would concur. I support the notion of individual
responsibility, and that is part of what we have got to come to
grips with. We all have to have shared responsibility, whether it
be hospitals, doctors, individuals. In other words, there is no free
lunch in getting to the objective of achieving universal access.
There does have to be shared sacrifice, and that means for you and
me as potential patients.

Mr. McCrery. Does that mean we need higher copayments or co-
insurance on Medicare?

Mr. Davidson. I think we need to look at all those kinds of op-
tions that affect our behavior.

Dr. Todd. But we have to be sure that they are not disabling.
They have to be at the right level so that they by themselves don t
become an impediment to needed health care.

Mr. McCrery. Don't discourage needed health care.

Mr. Davidson. Just mechanically, copays are a lot easier to deal
with than deductibles which you have to track in computer systems
and all the rest, but it is important to think through that.

Ms. Gwendolyn Johnson. Mr. McCrery, I would like to add my
concern related to copayments that would go to areas such as pre-
natal care and immunizations. I think we should not implement
into the system anything that would serve as a disincentive for
those kinds of services to be provided. I think we need to be very
careful, when we say that everyone has to pay in some kind of a
way, to look at whether or not there will be true disincentives in
areas where that care should be provided no matter what.

Mr. McCrery. I agree. In fact, if you expanded the degree of re-
sponsibility on the individual for ordinary medical care, you could

173

build in greater incentives for preventive care like immunizations
or prenatal care that would work perhaps better than the system
we have today in which many insurance policies don't cover those
things, and they cover a lot of other nuts and bolts stuff that people
should be able to buy on their own.

Ms. Gwendolyn Johnson. I agree with you. The disincentives
would be related to those areas of preventive care; and that is what
we are very concerned about if they do start to institute
copayments in those particular areas.

Mr. McCrery. Thank you all very much.

Thank you, Mr. Chairman.

Chairman Stark. Thank you. Thank the panel.

If there are no further comments, the hearing is adjourned.

[Whereupon, at 3:28 p.m., the committee was adjourned, to re-
convene at 10:30 a.m., Thursday, October 21, 1993.]

PRESIDENTS HEALTH CARE REFORM
PROPOSALS: IMPACT ON PROVIDERS AND
CONSUMERS

THURSDAY, OCTOBER 21, 1993

House ok Representatives,
Committee on Ways and Means,

Subcommittee on Health,

Washington, D.C.

The subcommittee met, pursuant to call, at 10:40 a.m., in room
1100, Longworth House Office Building, Hon. Fortney Pete Stark
(chairman of the subcommittee) presiding.

Chairman Stark. Good morning.

Today, the subcommittee continues its series of hearings on
health reform with testimony from representatives of consumer
groups.

I commend the President for his commitment to comprehensive
reform and repeat our commitment to help him achieve goals that
he so forcefully articulated in his address to the Nation a month
ago.

There are many aspects of this plan which I support and believe
this subcommittee could enact, with relatively minor adjustments.
The proposals for insurance reform, administrative simplification,
fraud and abuse, prescription drugs for seniors, perhaps, may fall
into this category.

Of course, with an issue of this complexity, there are other as-
pects of the plan which may require modification.

I am concerned, for example, that the plan, as described, will not
adequately address the needs of low-income and otherwise under-
served health care consumers. The low-income subsidy proposal,
which subsidizes premiums but not other cost-sharing require-
ments, would deny the poor a choice among health plans.

And we heard in the press over the weekend that that plan
would not be an entitlement for the poor but would require subse-
quent appropriations, a feat which I think is beyond the ability of
the legislative legerdemain of this committee.

Without modification, those policies would force those who rely
upon subsidies into the least cost plan in an alliance area and, in-
deed, perhaps exacerbate the difference in quality between the
least cost plans and others.

This problem for the less well-to-do will be exacerbated if health
plans are permitted to exclude individuals from defined service
areas or, as we used to say in the banking business and insurance
business, "redlining."

(175)

176

I am sure that each member of this subcommittee has his or her
own Hst of concerns. Each of those issues will have to be addressed
and resolved as we proceed through the legislative process.

I hope our witnesses will work with the subcommittee as we ex-
amine the impact of the health reform plan on our respective con-
stituencies.

As part of this discussion, we invite our witnesses to comment
on the relative strengths and weaknesses of the President's plan
relative to alternative health care reform plans that have been in-
troduced this session or discussed generally in the press.

Before proceeding with our testimony, I would like to welcome
our ranking member, Mr. Thomas, and recognize him for an open-
ing statement.

Mr. Thomas. Mr. Chairman, let's just begin the hearing. We
have a lot of folks and a lot of hearings. And if I make an opening
statement at every one of them, I will consume far more time than
I should over the course of these hearings. So let's begin.

Mr. Grandy. Mr. Chairman.

Chairman Stai^k. On the face of that, there is someone with the
temerity to make an opening statement.

Mr. Grandy.

Mr. Ghandy. I make it reluctantly, only because Mr. Thomas has
yielded his time and because I find my position on this committee
being relegated to one of defense more than offense.

And let me just begin by reading from the daily White House re-
port on health care reform, which applauds Carl Schram, who is
the former head of the Health Insurance Association of America,
chastising his former association for putting on reprehensible and
irresponsible — I am quoting now — ads to trash the Clinton admin-
istration's proposal. The administration applauds him for being a
constructive spokesperson.

Chairman Stauk. Would the gentleman yield?

Mr. Grandy. Yes.

Chairman Stark. When you give somebody a golden parachute,
make sure one of the conditions are they don't trash the former em-
ployer before you can them.

Mr. Grandy. Well, that leads me to my second point, Mr. Chair-
man.

Meanwhile, in a more dimly lit part of the White House, the on-
going operation to trash all the other details of all the other plans,
rather than write the details of their own plan, is proceeding apace.

And at almost the same time, a letter went out to Members of
Congress yesterday, signed by a group of 50 supposedly bipartisan
and very broad-based associations — half of them unions, the rest
consumer groups — basically tearing apart the Cooper-Grandy plan.

While I am flattered by their attention, I am somewhat appalled
by their inaccuracy and want to bring to this committee's attention
again that the ongoing hearings that we have had at this point
have broken down into three categories:

We have had the Clinton speech, followed by the Clinton concert
in front of all of the committees in the House and Senate, and now
we are hearing the Clinton defense.

But we still have no Clinton plan, no details, no numbers. That
is what we have.

177

Now there are at least three members of this committee that
have authored, scored, and prepared plans, the details of which are
now being taken apart.

I just hope that if we are going to continue to chew on each
other, the one goal that we supposedly are all espousing but refuse
to practice, bipartisanship, will not happen. And if that does not
happen, neither will health care reform.

There is no way you are going to force feed a health plan the way
a budget was force fed into this Congress. And I am loath to make
this kind of statement at the outset of the debate, but I want all
of the people, particularly those members on the panel today who
signed this letter, to be forewarned. If you are ready to tear apart
the Cooper-Grandy plan, you better come prepared and you better
be able to defend the differences between the Cooper plan and the
administration plan, one of which has been authored, the other
which has been alluded to.

Thank you, Mr. Chairman.

Chairman Stark. If the gentleman would yield.

Mr. GuANDY. I graciously yield to my benevolent Chairman.

Chairman Stark. I would graciously associate myself with the
gentleman's remarks in their entirety.

But I would qualify myself as prepared, able, and willing to de-
bate the gentleman on the efficacy and effectiveness of the Cooper-
Grandy plan. He may choose the time and the weapons.

Mr. Grandy. Mr. Chairman, let the games begin.

Chairman Stark. For now we will proceed.

Mr. Grandy. Mr. Chairman, can I just reclaim my time for just
a moment?

You and I both know we have our philosophical differences on
the route health care should take, but we have at least done the
work expected of us.

Your plan is written and scored. Our plan is written and scored.
We, when we engage, will have all of our missiles and all of our
silos, and they will have warheads.

Chairman Stark. The gentleman is absolutely correct.

Mr. Kleczka, then Mr. Thomas.

Mr. Klkczka. Mr. Chairman, let me also address some comments
to our panel today.

By virtue of your being here, you do not lose any of your first
amendment rights. So when your turn is called, say what you want
for or against any plan. And please don't be constrained.

Thank you very much.

Chairman Stark. Mr. Thomas.

Mr. Thomas. Mr. Chairman, briefly, I understand the frustration
of my colleague; and I guess you and I have both been character-
ized as being somewhat frustrated, primarily because the adminis-
tration, back on September 22, had the President address a joint
session of Congress in terms of describing his plan. Now, here we
are, literally 1 month later with no plan.

Hopefully, next month we can enter into the specific discussions
that my friend and colleague from Iowa desires. Then we can get
away from this silly little thing about what we think a new plan
is going to deliver and look at the particulars.

178

Unfortunately, we are laboring under a situation in which the
White House — which Roosevelt described as a bully pulpit, and
which President Clinton is clearly pointing out with the First
Lady — is, in transmitting a general propaganda position, in favor
of assumptions versus our dealing with specifics.

It is very frustrating for all of us. I share the frustrations and
hope they will be short-lived. So when someone does make a nega-
tive comment about a plan that is out there, they do need to be
prepared to defend the plan that is not out there or you can't make
the negative comments.

Thank you.

Chairman Stark. Thank you.

If there are no other statements, we will get to the heart of the
matter. Our first panel represents senior citizens' groups, the prin-
cipal constituency of this committee over these past 28 years.

I am happy to welcome Judith Brown, the chair of the board of
directors of the American Association of Retired Persons; Dianna
Porter, public policy director of the Older Women's League; and
Martha McSteen, who is president of the National Committee to
Preserve Social Security and Medicare.

We welcome you all to the subcommittee.

And as for all the witnesses today, your complete written state-
ments will be part of the record of this hearing, for which, at this
point, I ask unanimous consent.

And without objection, that will be the case.

In addition, I would ask that all witnesses limit their oral state-
ments to 5 minutes. They may summarize or expand on their writ-
ten statements, and this will allow the members adequate time to
explore particular issues of interest. And I know they are anxious
to do that.

Please proceed, Ms. Brown, in any manner you choose.

STATEMENT OF JUDITH BROWN, CHAIR, BOARD OF
DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS

Ms. Brown. Thank you very much, Mr. Chairman. Good morn-
ing.

My name is Judy Brown, and I am the chair of the board of
AARP. As an organization representing over 33 million older Amer-
icans, AARP has had a longstanding interest in comprehensive
health care reform.

We commend both the President and Mrs. Clinton and Members
of Congress in both parties for a commitment to addressing this
issue now.

Enactment of reform will require not just bipartisan cooperation
but bipartisan leadership. AARP will not support or oppose the
President's plan or any plan blindly.

The day after the President's speech, we began the latest round
of hearings across the Nation to ask our members what they think,
adding to the thousands of hearings we have held over the past 3
years. We will carefully analyze the President's plan in terms of its
effect on our members, their families, and the Nation.

I would like to focus my oral remarks on a few major areas. Fi-
nancing and cost containment: We commend the President for es-
tablishing explicit financing for comprehensive reform and look for-

179

ward to an open discussion of the cost and financing assumptions
and estimates. Close scrutiny of the numbers is critical because, if
the proposed savings and revenues do not materialize, then impor-
tant benefits such as prescription drugs and long-term care — ^bene-
fits that are at the core of the older American's support for health
care reform — will be reduced and/or the entire reform effort may be
jeopardized.

Experience has shown that cost estimates only grow as the legis-
lative process advances. We agree with two critical aspects of the
President's proposal to curb health care costs, universal coverage,
and systemwide cost containment.

Mr. Chairman, without systemwide cost containment and univer-
sal coverage, AARP will strongly oppose further Medicare cuts. The
association will continue its assessment of the proposed cuts, which
are very alarming on their face, as we examine the effectiveness of
proposed savings in the private sector.

AARP generally supports the President's proposal to limit growth
in health care premiums in the private sector. Between 1985 and
1991, per capita spending in Medicare, which has been subject to
cost cutting, grew at a much lower, slower rate than per capita
spending in the rest of the health care system.

The association supports the President's effort to build upon ex-
isting financing mechanisms, particularly the requirement that em-
ployers pay 80 percent of the premiums. Nevertheless, AARP be-
lieves that broader, more progressive, and more stable sources of
revenue will be needed. AARP is particularly pleased that the
President's proposal includes a modest start for home- and commu-
nity-based care for persons of all ages and all incomes. Long-term
care is essential to our members and critical to AARP support for
any health care reform proposal.

However, we have several concerns. They include whether fund-
ing will be adequate for States to assure that all eligible bene-
ficiaries receive needed services and whether broad State flexibility
will lead to the kind of tremendous variation and fragmentation
that exists in Medicaid.

And while AARP supports the plan's modest Medicaid improve-
ments in nursing home insurance standards, millions would remain
unprotected against enormous nursing home costs.

The future of Medicare: AARP agrees with the decision to retain
Medicare as a separate program. Indeed, Medicare can be thought
of as its own national health alliance. We are disappointed, how-
ever, that Medicare beneficiaries would not receive the same cov-
erage as other Americans. We are very concerned about and would
recommend extreme caution regarding States taking over Medi-
care's program.

In conclusion, Mr. Chairman, AARP commends the President
and Members on both sides of the aisle who have brought health
care reform to this point. We recognize that reform may need to be
phased in over periods of years. Adjustments will need to be made,
but we must have comprehensive health care reform, and we must
have it now.

Thank you.

Chairman Stark. Thank you very much.

[The prepared statement follows:]

180

TESTIMONY OF JUDITH BROWN, CHAIR
BOARD OF DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS

Good moming. My name is Judith Brown. I am Chair of the Board of Directors of the
American Association of Retired Persons (AARP). Thank you for the opportunity to testify
today as the Subcommittee probes the public commitment to health care reform and reviews
the President's plan.

As a membership organization of 33 million older Americans, AARP has a longstanding and
profound interest in this debate. Roughly half of our members are between the ages of 50
and 64; the other half are over 65. Approximately one-third of our members are still in the
workforce.

Over the past few years, we have listened closely to what our diverse membership and their
families want in a health care system. Despite their differing circumstances, the vast
majority of Americans, old and young, have stressed a need for broader protections against
the high costs of health and long-term care.

One month ago the President stood before Congress and the American people and pledged
his leadership in fixing our broken health care system. He called on members of both
political parties to seize the "magic moment" of opportunity by enacting universal and
comprehensive health care. AARP commends President Clinton for his bold and constructive
plan for accomplishing reform. We also commend the First Lady, Congressional leaders in
both parties, and this Subcommittee for a commitment to addressing this issue now . We
believe that true reform must cover everyone, maintain high quality, make health care costs
affordable, and include vital prescription drugs and long-term care.

Lessons From The Past

A great national debate has begun, a debate that will affect every family and that cuts across
socioeconomic, cultural, and racial lines. Older Americans welcome the opportunity for
Congress and the President to demonstrate not only that they are listening to the American
people, but also that both parties can work together constructively toward much-needed
change in our health care system. Before outlining the Association's views on the
President's plan, and in light of the long memories of most AARP members, we find it
useful to offer an historical perspective on today's health care debate.

Almost sixty years ago. President Roosevelt signed into law the landmark Social Security
program . Social Security was a bold response to the growing crisis of insecurity among
American families. Thirty years later the Medicare and Medicaid programs were enacted.
Like Social Security, Medicare's protections are universal and its financing is broad based.
Consequently, Medicare and Social Security are popular among all age groups. Medicaid,
on the other hand, as a means-tested program that varies widely across the states, does not
enjoy the same popular support. The flaws that characterize the Medicaid program today
must be avoided in a reformed health care system.

Just five years ago, the Medicare Catastrophic Coverage Act was enacted and then repealed
by Congress and the President . AARP learned some valuable lessons from that episode,
lessons that we hope will serve us and policymakers well.

First , we learned that incremental gap-filling in the current health care system simply is not
acceptable to the American people. Older Americans viewed the new Catastrophic benefits
as too meager to warrant widespread support, particularly because long-term care was not
included.

Second , we learned that financing for health benefits cannot be narrowly imposed on a small
segment of the population. Medicare beneficiaries were required to pay 100% of the cost of
the Catastrophic program, increasing the flat and income-related premiums to extraordinary
levels.

Third , we discovered that estimates for financing the new benefits proved inadequate at many
points along the way, requiring cutbacks in benefits before the bill was enacted.

181

Fourth , we found it unrealistic to front-load the "pain" of additional beneficiary payments
without a corresponding "gain" in benefits. While most older Americans have shown great
patience in their lives, asking them for a full downpayment well in advance of receiving
benefits proved unacceptable.

Finally , we learned that the American people must clearly understand the benefits and costs
of change in the health care system and that all of us need to listen and be prepared to
respond knowledgeably to their concerns. After the Catastrophic bill was enacted,
misinformation abounded and clear-cut answers to legitimate questions were in short supply.
Since then, AARP has made a major effort to educate our members about the problems in
the current health care system and to listen more attentively to our members' concerns and
preferences. This time around, the challenge is much greater, and we simply must get it
right.

AARP is deeply committed to comprehensive health care reform now. If reform must be
phased in over a number of years because the financing is not adequate in the short term,
then so be it. If mid-course adjustments are needed along the way ~ and they will be ~
then build in the means to determine them and carry them out. But it is imperative that
Congress enact a comprehensive approach at the outset ~ establish in legislation a
"blueprint" for a reformed health care system ~ not simply patch up spots pell-mell from
year to year.

Key Elements of Health Care Reform

What does AARP mean by comprehensive reform? At a minimum comprehensive reform
must provide:

o A federal guarantee that all individuals have access to affordable, high-quality health
and long-term care;

o System-wide cost containment that eliminates cost-shifting and slows the explosive
growth in health spending;

o Comprehensive benefits that include prevention, physical and mental health care,
prescription drugs, home and community-based care, and nursing home care;

o Health delivery system reforms that increase access to care in underserved areas and
reward efficient, high-quality care; and

o Broad-based, fair and affordable financing, so that government, businesses, and

individuals all pay their share and everyone is protected against the high costs of care.

AARP's proposal for comprehensive health care reform, "Health Care America," was
developed with the extensive involvement of AARP members across the country. Its
centerpiece is a strengthened and expanded Medicare program through which everyone would
be eligible for a comprehensive, nationally mandated package oi medical and long-term care
benefits. Employers would be required to contribute to the cost of their workers' benefits,
either through the expanded Medicare program or through private coverage. In addition to
ensuring access, the system would continue to foster choice, diversity, and innovation in the
delivery of health services. The system would be accountable to consumers through a new
Federal Health Care Commission that would set spending targets and establish other rules.

AARP Views on the President's Plan

Now that the President's plan is before Congress and the American people, we have shifted
our attention to reviewing its many details while using "Health Care America" as a guide.
AARP will not support or oppose the Preadent-'« plan blin<tiy. The day after the President's
speech, we began a series of field hearings across the country to ask our members what they
think. We will carefully analyze the plan in terms of its effect on our members, their
families, and the nation. We will assess its status at each step of the legislative process, and

182

work to improve it. As a start, we have already identified many promising features of the
plan as well as some significant concerns.

Svstem-Wide Cost Containment

Rapidly growing health care costs now rob our nation's economy, businesses, and families of
the financial security which we all need to prosper in the future. And many families,
including millions of families of older Americans, find it increasingly difficult to even see the
future around the mounting health care bills on the kitchen table.

There is much in the President's proposals to curb health care costs with which we agree:

First, universal coverage must accompany cost controls if they are to be sucpessful-
A reform proposal that fails to assure that everyone has coverage will only lead to
another vicious round of cost-shifting between payers and between providers. With
universal coverage, providers will know that they will receive adequate payment for
their services. And families will be reassured that they can seek necessary care at the
appropriate time without being turned away. Only with the security of universal
coverage can we all focus on a more efficient use of health care resources.

Second, cost containment must be system-wide . We have just witnessed the latest
round of Medicare cuts - $56 billion in the 1993 budget reconciliation act. Those
cuts will do little to either slow the overall rate of health care cost growth in the
economy or provide a long-term solution to the budget deficit. Just like the
proverbial squeezing of one end of a balloon, cuts in Medicare-only payments to
providers inevitably pop up in higher costs to employers and individuals. And even
more troublesome for Medicare beneficiaries. Medicare-only cuts increase the chance
that physicians and other providers will not treat them.

In order to contain health care costs in the economy, the President's plan establishes separate
mechanisms for limiting public and private health care costs. Limits on public programs
such as Medicare and Medicaid would come in the form of aggregate spending caps,
enforceable through the congressional budget process. The new National Health Board and
regional alliances would enforce premium limits in the private sector, which would be backed
up with a penalty tax on health plans and providers if a limit is breached. AARP believes
that these mechanisms - if made to work in concert as part of a system-wide approach —
hold significant promise for containing costs. It will be important for Congress to establish
the level and phase-in schedule for health spending limits based on the health care needs of
Americans, and not based on arbitrary savings-driven targets . It will also be important to
achieve an equitable balance between public and private savings.

The Medicare cap is estimated to achieve $124 billion in savings between 1996 and the year
2000. Medicare cuts in the past ten years have already created large gaps between what
Medicare and private insurance pay for the same service. Right now. Medicare pays an
average of only 65 cents for every dollar that private insurance pays physicians. AARP
strongly supports reducing and eventually eliminating this payment gap.

In the absence of system-wide cost containment and universal coverage, AARP would
strongly oppose further Medicare cuts - especially large-scale cuts such as $124 billion.
Even with comprehensive reform, we are doubtful that the Medicare program could sustain
such enormous reductions without creating quality and access problems for beneficiaries.
The Association will continue its assessment of these cuts ~ which are alarming on their face
~ as we examine the feasibility and effectiveness of proposed savings in the private sector.

Premium limits in the private sector would finally begin to address cost growth where
heretofore there has been no constraint on spending. The Congressional Budget Office
recently found that while-Medicare..q)endiag grew-at an annual perrcapita rate-of 3. 1 pocent
between 1985 and 1991, total U.S. health spending grew at an annual per-capita rate of 4.8
percent. The reason for this difference is that Medicare is controlled through the federal
budget process but private health care spending is not. The fact that Medicare pays for care
of a generally higher cost population makes this disparity even more striking.

183

AARP generally supports the President's proposal to limit the growth in health plan
premiums. If done right, premium limits could protect individuals and families from high
costs in a way that is easily understood and broadly effective. And, it is premiums that are
most visible today to the average family. We do not believe that premium limits necessarily
will lead to lower-quality care or rationing of care as some provider and insurance interests
suggest. The Association recognizes that Congress may need to revisit spending limits in
both the private and public sectors after reform is in place, but it is critical to legislate
system-wide and enforceable controls at the outset to guide insurer, provider, and consumer
behavior.

The Association is concerned, however, that the lack of short-term cost controls in the
President's proposal could lead to im mediate "profiteering" bv health providers and insurers
at the expense of patients and consumers . Moreover, since the proposed Medicare cap
would require substantial cuts in 1996 before the premium limits take effect, cost-shifdng
between Medicare and private payments could reach unprecedented levels.

AARP further believes that effective cost containment throughout the health care system will
prove to be the linchpin for making reform work . If reform fails to control private-sector
costs, then federal subsidies to individuals and businesses will be higher, gaps between
Medicare and private payments will grow, and Congress will be faced with the choice of
scaling back guaranteed benefits or generating additional revenues to pay for reform.

Financing

Just one year ago, many of the health care reform proposals circulating on Capitol Hill and
within the Administration lacked at least one fundamental element - financing. While no
one pretended that paying for health care reform would be easy, only a few proposals
contained explicit funding sources. AARP commends the President for establishing at the
outset of the debate explicit financing for comprehensive reform. We look forward to an
open discussion of the cost and financing estimates as congressional committees and the
public demand proof that health care security can be financed as proposed by the
Administration. This scrutiny is critical because if the proposed savings and revenues do not
materialize, then important benefits will be reduced and/or the entire reform effort may be
jeopardized. Experience has shown that cost estimates only grow as the legislative process
advances.

The Association supports the President's call for "sin" taxes on tobacco as both a much-
needed source of revenue and a disincentive to smoking. Of concern, however, is whether
the estimate of revenue from a higher tax is realistic given that such a tax can be expected to
reduce utilization. Congress should consider expanding this policy to include alcohol, which
also contributes to health care costs.

We also support the President's effort to build upon existing financing mechanisms.
particularly the requiremCTt that employers pay at least 80 percent of hea lth plan premiums.
Nevertheless, AARP believes that broader, more progressive, and more stable sources of
revenue are needed to accomplish comprehensive health care reform. In our own plan,
"Health Care America," we proposed an option of a 3 percent income tax or 5 percent VAT
dedicated entirely to health care. Both tax options proved accqptable to our members when
linked to universal coverage for a fiill benefit package, including comprehensive long-term
care.

More serious concerns are raised by the Administration's heavy reliance on planned
reductions in Medicare and Medicaid spending to ftee up the federal funds necessary to
provide universal coverage, to protect low-wage businesses and low-income individuals, and
to provide additional benefits such as a Medicare drug benefit and long-term care. The
Administration's plan projects $238 billion in savings over five years ft-om the cap on
Medicare and Medicaid. Less attention, has beea given to an additional $259 billion that
would be transferred from Medioie and Medicaid to. alliances to pay.forxurrent
beneficiaries who are shifted into the alliances.

184

There is good reason to be skeptical about whether savings of this magnitude can or should
be obtained from Medicare and Medicaid. During the 1980s, Medicare spending was cut by
over $80 billion cumulatively. Another $43 billion was cut in OBRA 1990 over five years,
and OBRA 1993 reduced spending an additional $56 billion over five years. One of the
serious risks of cuts of this magnitude is that they will institutionalize the disparity in
reimbursement between private insurance and the Medicare program, making it more difficult
for Medicare beneficiaries to gain or retain access to physicians. These savings, even if they
can be achieved quickly, are not a permanent financing source. Once the system is made
more efficient, we will need to identify more lasting funding sources for the public cost of
health care delivery.

While we understand that the Administration's Medicare savings proposals are only an
"illustrative" list and are comprised mostly of deeper cuts in provider payments, one proposal
stands out as a significant departure from the current program - income-relating the Part B
premium.

AARP has strongly opposed this proposal outside the context of health care reform, arguing
that it would constitute nothing more than a cost-shift to beneficiaries without adequate
control over system-wide spending. We have also maintained that if Part B premiums were
income-related, then premiums throughout the health care system should be income-related as
well. It does not seem fair that taxpayers would continue to subsidize the health care
premiums of a Wall Street executive with a salary of more than $1,000,000 a year while
subsidies to Medicare beneficiaries with much lower incomes are substantially reduced. If
Congress and the President believe that "income relating" premiums is a good idea for the
elderly and disabled, then it is at least as good an idea for the rest of the country.

Universal Coverage and Comprehensive Benefits

AARP is very pleased that the President's plan recognizes the importance of universal,
comprehensive coverage. Two weeks ago, the U.S. Census Bureau announced that 2 million
more Americans were without health insurance throughout 1992 than throughout 1991. This
erosion of coverage cannot continue. As the President stated in his address to Congress: All
Americans must have "health security; health care that can never be taken away; health care
that is always there. "

AARP strongly supports the requirement in the President's plan that premiums be
community-rated so that individuals under age 65 are neither rewarded nor penalized on the
basis of characteristics such as age, gender, or health status. Community rating is the most
equitable way to share responsibility and risk across the American population. It is the way
insurance should operate, and largely once did in this country. Community rating has
important labor market benefits as well, since it substantially reduces disincentives for
employers to hire and retain older workers.

Health CQvgrage myigt npt pnly t?g availat)lg; it mu$t ^ ^fqrij^blg a? wgU. Individuals alone
cannot afford to pay the high cost of premiums, rather it must be a shared responsibility
among businesses, individuals, and the government. The President's plan asks all employers
— as well as employees — to contribute to the cost of coverage. AARP strongly supports this
approach. This mandate would help to level the currently uneven playing field where some
businesses - including many small businesses - pay more than their fair share, while others
pay nothing. More importantly, employer contributions are critical to achieving universal
coverage without substantial increases in federal income taxes. By requiring individuals to
pay something toward their care, the President's plan can reinforce the principle of personal
responsibility ~ a principle already put into practice in the Medicare program through its
premiums, copayments, and deductibles.

Legitimate concerns have been raised about the loss of jobs in the small business sector as a
result of the employer-mandate.. In-aa-econoaiy-as c o mp lex a s ours, the nst effect on jobs is
difficult at best to estimate. However, estimates of the ngl effect on employment of AARP's
"Health Care America" proposal, which includes universal coverage and an employer
mandate, indicate that employment is reduced at most by only 0.3 percent in the first two
years after implementation. By the third year, job gro\vth resumes, and by the fifth year.

185

employment is higher than it would otherwise have been without reform. In other words,
health care reform, even with an employer mandate, can be an investment in the nation's
long-term economic growth.

Many working and non-working families will also need assistance in paying their share of
premiums, deductibles, and coinsurance. While the plan notes that subsidies would be
available to the under-65 population with incomes up to 150% of poverty, far more
information is needed on the amount of the subsidies at each income level. We are also
concemea that low-income Medicare beneficiaries might lose important protections.
Currently, over 3.5 million Medicare beneficiaries are dually eligible for Medicaid benefits.
An additional one million low-income Medicare beneficiaries are eligible to receive full or
partial subsidies for Medicare-related out-of-pocket health costs through the QMB program.
It is unclear whether such protections continue under the President's plan. It will be
important to assure that these subsidies are maintained and strengthened in a reformed health
care system, so that there can be a consistent policy for low-income persons of all ages.

What is and is not included in the benefits package is one of the most fundamental questions
for consumers . The package proposed by the President takes a major step in covering a
number of benefits that are typically omitted from or severely restricted in most private
plans, such as immunizations, regular check-ups, mammograms, and other preventive
services. We are also pleased that mental health and substance abuse services will be
covered. We are concerned, however, that the limits on, and required cost-sharing for, both
inpatient and outpatient care will prevent some individuals with mental illnesses from
receiving needed services. The Administration's promise to place mental health care on a
par with physical health care simply must be fulfilled by the year 2001, if not sooner.

AARP strongly supports a guaranteed comprehensive benefit package for all Americans . In
that light, we are deeply disappointed that the President's plan would not provide the same
coverage (i.e., the same benefit package, the same cost-sharing limits, the same limit on out-
of-pocket spending, and full elimination of balance billing) for Medicare beneficiaries as it
would for younger populations. We hope that these gaps can be filled as the proposal works
its way through Congress. The need for health care, as well as the need for assistance to
pay for that care, does not decline when one celebrates his or her 65th birthday.

Long-Term Care

AARP is particularly pleased that the President's proposal includes some coverage for home
and community-based care for persons of all ages and incomes. The new program represents
a serious though modest start towards addressing the unmet needs of millions of American
families. The inclusion of long-term care is vital to our members and critical to AARP's
support for any health care reform proposal.

Clearly, Americans of all ages strongly support such inclusion. A survey conducted for
AARP this past April found that 90 percent of the respondents felt that including long-term
care in a health reform proposal was important. Su pport for health care reform increased
from 46 percent to 82 percent when long-term care was included . More recently, in a poll
conducted for AARP less than two weeks ago, 86 percent of adults of all ages stated that
they would be less in favor of the President's health care proposal if long-term care coverage
were not included. And, in a study conducted last year for AARP by DYG, Inc., the
amount that individuals were willing to pay for coverage increased substantially when both
home care and nursing home care were included.

Long-term care is an issue that touches all of our lives at some point through family and
friends. In our view, it makes no sense to provide protection against an acute illness but
leave people vulnerable if they suffer ftx)m a chronic problem, especially since the need for
these services is so interrelated. Persons with disabilities - of any age ~ are much higher
thiut average users of medical services and reqtuie^both Idnds-ef caie to meet their complex
service needs.

Unfortunately, while i^roxiniately 37 million people lack basic medical insurance, virtually
all Americans lack protection against long-tain caie expenses. Moreover, to a family sitting

186

around the kitchen table, there is no difference between spending $20,000 on hospital care
and spending $20,000 on home care. It is still $20,000 they probably do not have. To
achieve true security, savings and quality in our health care system, coverage must not be
limited only to the provision of services by a hospital or doctor; long-term care must also be
included.

Since AARP is committed to advocacy for a health care program that will serve persons of
all ages with disabilities, we are pleased that approximately one-third of the 3 million
Americans who would receive help under this new program are under age 65. In addition,
the proposal could finally provide much needed support and respite to caregivers-primarily
mothers, wives and daughters~who are shouldering enormous burdens taking care of their
loved ones. Many caregivers are jeopardizing their own health and, in some cases, are
forced to leave the labor market, thereby suffering not only short-term loss of income, but
also long-term reduction in Social Security and private pension benefits. Concern about the
cost of long-term care - financial as well as emotional - is in fact greatest among those in
the 50-64 year old group.

The Association is supportive of giving families choices and options they currently do not
have, as the proposal would do. Our current system suffers from an institutional bias, which
tears families apart and forces too many people to deteriorate slowly or go into nursing
homes prematurely because they cannot receive care where they want it most— in their own
homes or in supportive environments such as assisted living facilities.

Although AARP is pleased with the proposed expansion of home and community-based
services, severed questions and concerns remain . For example, the reliability of the funding
for the program is a concern. Would funding be subject to annual appropriation or
sequestration? Because a capped federal contribution is contemplated, we wonder what
would happen if a state runs out of money before the end of its fiscal year. Could services
simply be cut off? Will states be at risk and, therefore, less willing to participate in the
program? The experience to date with an optional, capped program such as the Section 4711
Frail Elderly program does not inspire confidence.

Questions also remain regarding the basic structure of the new program. Although AARP
generally supports state flexibility and experimentation, we are concerned that the
tremendous variation and fragmentation that exists, especially under Medicaid, might persist.
State flexibility needs to be balanced by clear federal standards to require the provision of
basic services, to promote efficiency, and to assure that consumers are fully protected. In
addition, it appears that states have the option not to participate in the program at all. Such
an approach could pose serious problems if poorer states, for example, elected not to
establish this program for its most vulnerable citizens.

In addition, although AARP supports the modest Medicaid improvements and private
insurance standards proposed for nursing home care, millions would remain vulnerable to
impoverishment due to lack of protection against these enormous costs. The single greatest
fear which families confront in long-term care is the devastating costs of a nursing home stay
which now average $30,000 a year and reach $60,000 a year in some parts of the country.

AARP looks forward to working with members of this Committee and with other members
of the Congress to help ensure that long-term care remains an integral part of the health care
reform package and that all Americans who suffer from serious chronic and disabling
conditions receive the help they need.

Prggcriptign Dry gs

We are pleased that the President's health care reform proposal includes a comprehensive
outpatient prescription drug benefit for all Americans, including Medicare beneficiaries.
AARP is extre m e ly concetned-a bout the l a ck of acce s s - to pre s cripti on-dfugs (an estimated 72
million peapls do not havp. rnveragp), particularly among older Ame ricans. The_COmbined
effects of high prices, heavy utilization, and the absence of affordable insurance coverage for
prescription drugs have significantly limited access to needed drug therapies for older
Americans. A recent national survey sponsored by AARP showed that:

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older Americans use significantly more prescription drugs than other age
groups to maintain their health;

o prescription drug insurance coverage declines rapidly as age increases; and

o out-of-pocket costs for prescription drugs are significantly higher for older
Americans than for their younger counterparts.

As a result, many older Americans cannot afford high prescription drug prices and are too
frequently denied access to essential, often life-saving, medications — compromising their
health status and making them more likely to receive unnecessary and more expensive acute
care. About 10 percent of those surveyed said they have had to cut back on necessary items,
such as food and heating fuel, to afford their medications.

The incorporation of a prescription drug benefit in health care reform will ensure access to
important, often life-sustaining, drug therapies to all Americans, especially those who are
most vulnerable to losing access today. Lack of a prescription drug benefit today contributes
substantially to unnecessary hospital admissions and other conditions that can be prevented or
controlled through pharmaceuticals. With more breakthroughs in drug development, medical
care in the future will rely increasingly upon drugs and biotechnological products.

We are also pleased that the President's proposal includes strong cost containment
mechanisms as an essential part of the Medicare drug benefit. We are concerned, however,
that pharmaceutical manufacturers are already engaged in a major lobbying effort to
eliminate any meaningful cost containment provisions from the proposed plan. In fact, we
understand that the industry's leading association is attempting to scare Medicare
beneficiaries into falsely believing that the President's cost containment efforts will result in
the absence of Medicare coverage for important breakthrough drug therapies. We do not
believe this is true.

In this regard, we strongly encourage the President and the Congress to remain firm in their
commitment to contain prescription drug costs under the Medicare drug benefit . If effective
cost containment is eliminated from the proposal, the Medicare drug benefit will quickly
become unaffordable to both taxpayers and beneficiaries. This was clearly the case during
the development of the Medicare Catastrophic Coverage Act (MCCA). Due to the lack of
effective cost containment, the projected cost of the MCCA drug benefit (and the resulting
estimates of premiums to be paid by beneficiaries) skyrocketed even before the bill made its
way through Congress. Recent comments by Administration spokespersons about re-
estimated drug costs and beneficiary premiums are therefore disquieting.

The pharmaceutical industry argues that every dollar sought by policymakers to contain drug
prices will come directly out of research and development of important breakthrough
medications. We believe this is simply false. Much more than legitimate research and
development activities go into the manufacturer's price of a drug. Thus, drug manufacturers
have many choices as to where they can be more efficient and cut costs.

In fact, according to a recent study by the Senate Special Committee on Aging, only 16
percent of the manufacturer's price of a drug goes toward research and development
compared to the 36 percent that goes toward profits, marketing, and advertising. In addition,
drug manufacturers' revenue will increase substantially under the President's plan as millions
of Americans who currently lack coverage for prescription drugs will gain that coverage.
Much of this revenue could be used for Intimate research and development endeavors.

Vulnerable 50-64 Year Olds

About half of AARP's 33 million membos are undo* the age of 65. In listening to these
members, we have discovered some disturbing trends. A 1992 study of public attitudes
toward health care reform conducted by DYG, Inc. for AARP revealed that the 50-64 year-
old population is much more critical of the health system than are other age groups. Not yet
eligible for Medicare, this age group is tbe most cooceroed about the cost of health care and
the security of their covoage. Only about half of 55-64 year olds are in the workforce, and

188

a disproportionate share of those who are employed earn low wages, work in smaller firms
and industries least likely to offer coverage, or are self-employed. Gaps in coverage for this
age group may also result from retirement or Medicare enrollment of an older spouse,
divorce from or death of a working spouse, early retirement for medical reasons, or
insurance industry underwriting practices that are increasingly squeezing less healthy
individuals out of the group market.

AARP is Pleased that the President's plan would provide health securitv for a segment of this
vulnerable population - so-called "early retirees . " Such a system for retiree coverage would
also help to restore the compehtiveness of industries that have previously borne a
disproportionate share of retiree health costs. According to the draft proposal, retired
workers age 55 to 64 who meet the 40-quarter work requirement would receive a government
subsidy for 80 percent of the premium for the nationally guaranteed benefit package. Former
employers who now pay retiree health benefits would continue to contribute toward retiree
coverage by paying the retiree's 20-percent share of the premium.

While this feature represents a significant improvement, the plan does not offer comparable
protections for non-working, vulnerable 50-64 year olds who do not meet the Social Security
requirement of 40 quarters of work. It is our understanding that retirees age 55 to 64 who
do not meet this requirement would potentially be liable for the entire cost of their health
premium in the alliance. This is of particular concern for women in this age group, who
may not have the necessary work history but are now widowed or divorced.

A related concern is the plan's restriction of Medicaid coverage for supplemental services to
recipients of cash assistance only (i.e., SSI and AFDC recipients). One out of every three
current Medicaid recipients age 50 to 64 is eligible on a basis other than cash assistance .
Over 20 percent of these near-elderly Medicaid recipients do not work and have incomes
over 150 percent of poverty, leaving them without either employer contributions or federal
subsidies to help ensure their access to health coverage under the alliances.

Some have suggested that a more straightforward, efficient, and fair way to assuring
coverage for the 55-64 year old group is to lower the age of Medicare eligibility to 55.
AARP believes that Congress and the President should consider this approach as a possible
alternative to the more limited "early retiree" proposal.

Governance. Quality, and the Consumer

The President's plan proposes a new system for governing and organizing health care
financing and delivery. For most consumers it will mean getting coverage, receiving
information about health plans, evaluating quality, and lodging grievances through a new
entity called a regional alliance, rather than going through an employer or an insurance
company. The plan also proposes to establish a National Health Board at the federal level
that would be responsible for setting national standards, enforcing the national health budget,
and overseeing state administration of the new health system. Finally, the proposal gives
states important new roles and flexibility in managing a reformed health care system.

wg strpngly agrgg wjth thg PresJdCTt that wr system fQf providing wvgraeg and dgUvering

care must be more responsive to consumers . Consumers need to have a say not only in their
selection of health plans, but also in governance and assuring quality throughout the health
care system.

According to a draft of the President's plan, states will play critical roles in health care
reform. They will be responsible for establishing health alliances and qualifying and
regulating accountable health plans. States will be given a great deal of flexibility to manage
health care financing and delivery within their borders. While we recognize the innovations
in health care financing and delivery developed in some states, we have serious questions
about whether overly broad state flexibility will benefit consumers.

Under the President's proposal, for example, states could establish regional alliances as
either nonprofit corporations or a state agency. If the alliance is a nonprofit corporation
there must be a board of directors comprised of equal representation by consumers and

189

employers. If the regional health alliance is a state agency, however, there is no requirement
for a board of directors. This poses serious questions about adequate consumer participation.
We would suggest that the governance structure of any type of regional health alliance be
controlled by consumers since they are both the recipients of care and the ultimate source of
financing. While a few states have been pioneers in their effort to reform health care, most
of AARP's experience with states — who are faced with far more limited fiscal bases — has
been less than encouraging. Whether from the vantage point of nursing home quality
standards or the manipulation of funds under disproportionate share hospital payments, the
record of states does not recommend greater responsibility. Much more needs to be done in
this area as legislation advances to assure good stewardship.

The Association welcomes many of the President's initiatives to improve the q ualitv of care .
Because accurate and useful consumer information will be critical to public accountability
and choice, we are particularly pleased to see that an extensive consumer information
program has been proposed. Among the elements of the new quality program that we
applaud are: (1) the use of consumer surveys to measure access to and satisfaction with care,
as well as its outcomes; (2) the development of uniform encounter and claims forms, key to
a nationally standardized database, and (3) the development of a core set of quality and
performance measures.

We must recognize, however, that it will take a long time to develop and implement the data
systems which are envisioned, and that many critical performance and quality measures ~
particularly those which measure the quality of care for persons with chronic physical and
mental illnesses -- are not yet available. We believe that there must be sufficient resources
to develop the necessary information and data infrastructures, and that these funding sources
should be specified in the proposal.

While consumer information is a critical component in the overall quality assurance strategy,
by itself it will not adequately address consumer concerns about the potential for poor quality
care. As proposed, the plan does not clearly identify those entities that are to be responsible
for protecting consumers from incompetent providers. Especially in light of the time it will
take to develop an effective consumer information system, the apparent lack of external
quality review, independent from payer (alliance) and provider (plan) responsibilities, seems
to be an important "missing piece" in the proposed quality system.

In addressing these matters, the roles of state medical licensure boards and insurance
regulators need to be carefully articulated. The proposal to eliminate the Medicare Peer
Review Organization (PRO) program without a clear successor entity also raises a number of
concerns. On the basis of what criteria would the decision that Medicare beneficiaries are
adequately protected in the new system be made, and what entity or entities would pick up
current PRO ftinctions?

Another important consumer protection is access to independent and timely i
mechanisms in the event of quality problems or denials of care. While the proposal does
note that plans must provide "due process" for patients to appeal denials or reductions in
coverage, these protections are not specified, and it appears that it would be left up to the
plans to decide how much process is due. AARP believes that ihert should be nationally
uniform due process protections for all consumers.

The Futyre of Mgditarg

AARP concurs with the decision to retain Medicare as a separate program. Indeed, in the
President's plan. Medicare can be thought of as its own national health alliance . While we
believe that ultimately the entire health care system should be seamless, we also believe that
for the time being, it is preferable to permit Medicare beneficiaries to remain in a system
that is tested and popular. Medicare beneficiaries simply do not have adequate experience
with the alternative delivery systems that the President's proposal envisions would
predominate in the reformed system. The current Medicare coordinated care strategies have
not attracted sufficient numbers of beneficiaries or participating health plans to adequately
test the viability of alternative delivery systems for older populations. HCFA reports that as
of September 1, there were 1.7 million Medicare beneficiaries enrolled in risk HMOs-or

190

only atx)ut 5 percent of the 34 million Medicare beneficiaries. Furthermore, there are
sections of the country where beneficiaries do not even have the opportunity to select a
Medicare HMO. Mathematica Policy Research reported that in January 1992, participating
plans served 40 different metropolitan areas across 28 states, which left half of the Medicare
population without the opportunity to enroll in an HMO.

The limited experience that beneficiaries have had with alternative systems and their
hesitation to deviate from the traditional Medicare program suggest that decisions concerning
the integration of Medicare into the new environment should be made with great care .
Currently, there is a system in place that is generally responsive to the special vulnerability
of the Medicare population. Inevitably, as we begin to reform the nation's health care
system there will be a period of volatility and instability in the system as new infrastructure
is built and systems change. For those who are most physically dependent on the system, we
believe that it is prudent to preserve a program with a good track record, at least until the
new system has proven successful.

Treatment of Working Medicare Beneficiaries . It is our understanding that Medicare
beneficiaries who are working will receive coverage through the regional alliances. We have
a number of concerns about important details behind this proposal. For what benefit package
would they be eligible? How will premiums for this beneficiary group be set? How much
will employers, the Medicare trust fund, and beneficiaries each contribute?

Treatment of Individuals Turning 65 While in An Alliance . It is also our understanding that
those turning 65 while in an alliance may elect to either remain in the alliance or join the
traditional Medicare program. We are concerned that individuals who decide to join the
Medicare program would be subject to higher cost sharing, no cap on out-of-pocket costs,
balance billing, and less generous low-income protections - in short, worse coverage - than
that available through regional alliances.

Other serious questions arise:

How much in premiums will these individuals be charged? The president's proposal
clearly indicates that health plans will negotiate separate rates for those over the age
of 65 who elect to receive coverage through an alliance and alliance members under
age 65. It further indicates that Medicare will make a fixed contribution to the
alliances "equal to the costs that Medicare would be projected to bear," but it is
unclear how this calculation would be made.

o Will beneficiaries who decide at age 65 to remain in the regional alliance have an
opportunity to join the traditional Medicare program during each annual open
enrollment period?

o Will beneficiaries who choose traditional Medicare be able to purchase needed
medigap coverage that is not medically underwritten?

While many individuals over 65 are likely to elect to receive health care through regional
alliances, there will be a group of benefidahes^who continue to receive coverage under
traditional Medicare. To adequately cover the costs of this group, it will be necessary to
build-in an adjustment to the cap on federal spending for Medicare to take into account the
higher expenditures that may be generated as this population ages.

State Integration . A further issue concerning integration of Medicare beneficiaries into
broader systems is the proposed authority to allow states to integrate Medicare beneficiaries
into health alliances. We are not convinced that states would be abl e to develop and
maintain consistent, high standards with respect to oversight and enforcement that would bc
necessary to « !nppnrf a takpover of the Medicare proyram. Moreover, unless the Medicare
funds were earmarked for use by beneficiaries, we would have concerns that states might
divert such funds for other purposes.

191

If Congress decides to grant a limited number of states the authority to integrate Medicare
into broader systems, the Association urges that such authority be conditioned on clear
requirements and procedures that include ongoing federal oversight. Interested states must
demonstrate and the federal government must ensure that Medicare beneficiaries will receive
the same benefits as the under-65 population as well as appropriate access and high quality of
care. Before entering into this type of arrangement with the states, the federal government
must be able to justify with confidence and certainty how state integration will improve the
current system. We do not believe that there is sufficient evidence at this point to support
state control over the Medicare program.

Conclusion

In conclusion, Mr. Chairman, AARP commends the President, as well as the many members
of Congress on both sides of the aisle who have brought the issue of health care reform to
this stage. The President's plan incorporates many of the features that AARP has supported
in its own proposal. At the same time, both the scope of the President's plan and the need
for greater clarity on certain key provisions, not least of them financing and the ability to
deliver the coverage promised, require careful consideration. We hope and trust that the
next several weeks of hearings in the Congress as well as the Administration's continuing
refinement of its proposal will contribute to a greater public understanding of all the plans
before Congress and ultimately move the debate toward bipartisan legislation in the second
session of the 103rd Congress.

If there's one thing we should all agree on, it's that the status quo is not an acceptable
option.

192

Chairman Stark. Ms. Porter.

STATEMENT OF DIANNA M. PORTER, DIRECTOR OF PUBLIC
POLICY, OLDER WOMEISTS LEAGUE

Ms. Porter. Thank you, Mr. Chairman.

I would hke to commend you and your committee for being will-
ing to hear from various segments of the American population, in-
cluding consumers.

The Older Women's League welcomes President Clinton's health
care reform proposal, which offers substantial benefits to midlife
and older women. We view the plan as a significant step forward —
but not a complete answer to the health care crisis.

OWL continues to support the establishment of a federally fund-
ed and administered single-payer system on the national level as
the best way to contain costs without sacrificing quality of care.

America's health care system must provide universal coverage
that is affordable, equitable, and guarantees every individual, in
their own right, comprehensive health coverage throughout life. A
single-tiered health system with a single eligibility criterion and
uniform administration and implementation best meets those goals.

We have examined the President's plan according to our organi-
zation's own health care principles, and my written testimony in-
cludes that in detail. But I would like to highlight some of the key
points. First of all, under "Benefits," the Older Women's League is
pleased with the community

Chairman Stark. Ms. Porter, may I interrupt for iust 1 minute.
And for all the witnesses today, our microphones only work if you
practically swallow them. So if you will bring it up real close, it will
be easier for the reporter and our guests to hear your invaluable
testimony.

Ms. Poin'Ki?. All right. I assume you don't want me to start over,
though.

Chairman Stai^k. You may. But that is much better.

Ms. Portkr. ok. The Older Women's League is pleased with the
community rating structure and the range of preventive, primary,
specializea, reproductive, and long-term care services.

These services were promoted by the Campaign for Women's
Health, a project of OWL. The campaign is a coalition of 80 wom-
en's organizations who are focusing on women's health needs.

We would like to see, however, under the benefits that there be
covered, clinical preventive services for Pap smears and pelvic
exams, also that there be clarification on mammograms, as we un-
derstand the National Cancer Institute has revised its rec-
ommendations.

We recommend that treatment schedules be established consist-
ent with evolving research, and that a standard be established that
allows health providers to order these and other screening tests
based on the health needs of an individual woman. We also would
recommend inclusion of osteoporosis screening as a covered clinical
benefit.

We do applaud the inclusion of prescription drugs under Medi-
care, and the acute plan. Such a benefit is very important to older
women. Pharmacy reports indicate that women over age 65 spend
$6.5 billion annually on prescription drugs. However, we are con-

193

cerned with the premium increases in addition to the deductibles.
And 20 percent copayment may not alleviate the stress for many
older women with limited incomes. Mr. Chairman, I am sure you
know the median income for older women is only $8,100.

We are particularly pleased that the President's plan does in-
clude some provisions for long-term care services. Over the course
of the past year, those of us who have been advocating for long-
term care have heard various messages. First of all, we heard that
long-term care would not be included at all because it was too ex-
pensive. Then we began to hear that it would be included but with
a phasein period of 15 to 20 years. Then we began to hear that it
would be a means-tested program. So we are pleased to see that
there is some long-term care services within the President's plan
and that it is a reasonable phasein period, and at least with the
new home- and community-based program it is not a means-tested
program.

We would like to see, however, that the institutional care be in-
cluded as part of the continuum of long-term care and it should not
be just limited to just those who are Medicaid eligible.

As far as the new home- and community-based services, we see
that there is no additional benefit or guaranteed benefit to the
services beyond an assessment, a care plan and personal assistance
services. We hope with the high range of Federal funding that
States will develop an array of services, but we do believe that
there needs to be a gatekeeping mechanism from the beginning to
make sure that individuals receive the needed services and it is not
a provider-driven system. We do applaud the single-payer option on
the State level as a first step. In fact, our organization in years
past had developed a model bill to be used for introduction into
State legislatures.

However, at a minimum, the new health care initiative should
encourage a State, not discourage, State single-payer level pro-
grams. We do need careful monitoring over time to allow compari-
sons among States selecting alternative strategies to make the
plan's goals.

One thing I would like to emphasize is the administration's focus
on the training of primary care physicians. We hope that includes
geriatricians.

We would also like to make a special plea that it include the
training of long-term care workers. They are going to be in the
front lines of providing long-term care services. We need to upgrade
their training and also see that they get benefits.

The Older Women's League commends the President and Hillary
Clinton for their leadership in bringing health care reform to this
point. We pledge to work with the administration and with the
Members of Congress, to assure that America's health care system
provides universal coverage, affordable, equitable and comprehen-
sive.

Mr. Chairman and members of the committee, throughout this
century, reformers have attempted to reach a goal of access to
health care for every person in America. This is our opportunity to
ensure that goal is finally reached.

Thank you.

[The prepared statement follows:!

194

TESTIMONY OF DIANNA M. PORTER
DIRECTOR OF PUBUG POUCY, OLDER WOMEN'S LEAGUE

MR. STARK AND DISTINGUISHED MEMBERS OF THE SUBCOMMITTEE:

Thank you for the opportunity to testify before your subcommittee today. I am
Dianna Porter, public policy director of the Older Women's League, and on behalf of
OWL, we commend you and the subcommittee for your willingness to hear from
diverse segments of the American population, including consumers, on health care
reform.

Founded in 1980, OWL is the only national grassroots organization to focus
exclusively on issues of concern to midlife and older women. Through education,
research, and advocacy, we work for public policy changes to reduce the inequities
women face as they age.

The Older Women's League welcomes President Clinton's health care reform proposal
which offers substantial benefits to midlife and older women. We view the plan as
a significant step forward, but not a complete answer to the health care crisis.

OWL continues to support the establishment of a federally funded and administered
single payer system on the national level as the best way to contain costs without
sacrificing quality of care. America's health care system must provide universal
coverage that is affordable, equitable, and guarantees every individual, in their own
right, comprehensive health coverage throughout life. A single-tier health system with
a single eligibility criterion, and uniform administration and implementation best meets
those goals.

We have examined the President's plan, dated September 7, 1993. My comments are
based on how the President's plan measures against our organization's health care
principles.

PRINCIPLES

As outlined in the President's plan, many of the ethical foundations of health reform
are consistent with those established by OWL. They include universal access,
comprehensive benefits, quality and equality of care, fair distribution of costs,
personal responsibility, inter-generational justice, a single-tier system, single eligibility
criterion, no exclusions for pre-existing conditions, patient self-determination,
comprehensive benefits, and a system of budgeting for cost-containment.

COVERAGE

While OWL is pleased that the President's plan would cover all Americans and legal
residents, OWL's health care principles state that access is the right of aM residents
of the U.S. including those who do not meet the criteria set forth in the plan. We
remain concerned that the cost shifting which now occurs when non-insured people
delay getting health care or use emergency rooms will continue for people not covered
by the plan. In addition, it is not clear how low-income people who do not meet the
subsidy level determined by the plan, yet are unable to afford premiums or
copayments for services, will obtain a health security card or services to which they
would be entitled by virtue of having the card.

Although the Older Women's League prefers a health care system that is not tied to
employment, we support the employer mandate which extends to independent
contractors and part-time workers, the majority of whom are women who generally
lack coverage under the current system. However, if a part-time worker is covered
on a pro-rated basis by one employer and fails to work for a number of employers
sufficient to equal an employer contribution of 80% of a premium, she would have to
pay more than 20 percent of her premium. Currently a midlife woman who works
part-time has an average weekly income of $ 1 61 .00. Without adequate subsidies and
income thresholds for such subsidies, the cost sharing requirements will be onerous

195

for part-time workers.

Generally, OWL questions whether the subsidies for low-income individuals and small
employers will be sufficient and that access to the subsidies will be uncomplicated.
While OWL supports the plan's exclusion of cost sharing for certain preventive
services, we believe that subsidies should be in place for persons with an income
below 200% of poverty. We recognize that all individuals should be responsible for
some part of their health care costs, but at the same time we do not want low-income
people who may suffer from significant illnesses to be discouraged from obtaining
needed services.

There must be clear guidelines established to ensure that people eligible for subsidies
have easy access to those subsidies and that information on how to obtain the
subsidies are available in different languages and in different settings including non-
governmental community programs.

BENEFITS

The Older Women's League is pleased with the community rating structure and the
full-range of preventive, primary, specialized, reproductive, and long-term care
services. These services were promoted by the Campaign for Women's Health, a
project of OWL. OWL would like to see family planning and pregnancy-related
services defined to avoid ambiguity as the plan is debated. For instance, it would be
unacceptable for all the plans in a particular alliance to exclude abortion counselling
or abortion services. OWL is disappointed that dental, eye, and mental health care
will be limited until the year 2000.

It appears that the covered clinical preventive services do not include Pap smears and
pelvic exams for women over age 65. Yet the highest rates of ovarian and uterine
cancers occur in women age 65 and over. Medicare currently only helps to pay for
Pap smears to screen for cervical cancer once every three years. We believe that Pap
smears and pelvic exams for women over 65 should be included.

Although there continues to be inadequate research on the underlying causes and
prevention of breast cancer, it is imperative that the plan draw on the most recent and
randomized studies. Where there is inadequate information we believe there should
be a greater rather than lesser emphasis placed on the use of mammograms. Most
experts agree that women should have a baseline mammogram at age 35 and another
at age 40. The National Cancer Institute is revising its recommendations of a
mammogram every 1 to 2 years for women 40 to 49 and annually for women over
age 50. We recommend that treatment schedules be established consistent with
evolving research and that a standard be established that allows for health providers
to order these and other screening tests based on the health needs of an individual
woman.

The Older Women's League recommends inclusion of osteoporosis screening as a
covered clinical service. Osteoporosis is a major debilitating disease characterized by
the chronic loss of bone mass and is a major cause of fractures of the spine, hip,
wrists, and other parts of the skeleton. It affects an estimated 24 million Americans-
about half of all women over age 45 and nine of ten women over age 75-and leads
to approximately 50,000 deaths per year. Bone mass measurements assist physicians
in identifying risk in post-menopausal women and others. Preventive and treatment
measures can then be taken.

In reviewing the benefits section, we are concerned that some of the benefits which
are currently available to Medicaid recipients, including supportive services such as
transportation and dependent care, are not mandated in this plan. While we are very
pleased that under the acute plan, Medicaid recipients participate in the plan like
anyone else, their inability to access services because of inadequate transportation or

196

dependent care can pose insurmountable barriers. We would like to see a mandate
rather than an option or incentive program offered to the states to remove these
barriers.

We would also like to see greater clarity on the role of the primary provider and the
role such a provider would play in a consumer obtaining access to specialized care.
We believe geriatricians play a critical role in the delivery of services to the elderly and
urge they be considered primary providers.

OWL applauds the inclusion of prescription drugs under Medicare and the acute plan.
Such a benefit is very important to older women. Pharmacy reports indicate that
women over age 65 spend $6.5 billion annually on prescription drugs. However, OWL
is concerned that the premium increase (estimated now at $12 a month), in addition
to the $250 annual deductible and 20 percent co-payment, will not alleviate the stress
on many older women with limited incomes (the median income for older women in
1991 was $8,189 compared to $14,357 for older men). For example, if an older
woman needs on average $500 of prescriptions a year, she will have to first pay
$394 in premiums and deductibles (plus $50 of co-pay on the remaining $250 in
costs after the deductible).

LONG-TERM CARE SERVICES

Eligibility. Eligibility for home and community based services based on three activities
of daily living (ADLs) or need for supervision of these activities is within parameters
acceptable to OWL. However, we hope that eligibility at such a high level of disability
will not be locked in place permanently and that there will be a reduction to two ADLs
eligibility by the end of the phase-in period.

The Older Women's League is pleased that the long-term care program will not be a
means tested one. It is likely that low-income persons will be the population primarily
served by the program but the acceptance of the new program by the American public
will depend on its availability to all.

Raising the spend-down level for Medicaid eligibility for nursing home care for single
persons from $2,000 to $12,000 and an increase in the personal needs allowance to
$100 a month are improvements to Medicaid coverage for institutional care.

Cost-sharing. The sliding fee scale for those individuals with incomes above 150
percent of the federal poverty standard meets OWL's principles that any cost-sharing
must be income-based. We are concerned, however, that setting cost sharing at 150
percent of the poverty level is too restrictive (the poverty level for one person over
age 65 in 1992 is $6,729, and $7,299 for single persons under 65). OWL
recommends that the level for cost sharing be raised to 200 percent of the poverty
level and that states may not impose cost sharing on income below 200 percent of
the poverty line.

Benefits. A full continuum of long-term care services, including those in institutional
settings, must be available under a comprehensive long-term care plan.

Although OWL supports the development of alternatives to institutional care, OWL has
the following concerns:

• that such alternatives do not implicitly assume that "informal" caregiving
services offered primarily by women are available, and that there be recognition of the
limits and needs of informal caregivers;

• that alternatives to institutional care be broadly defined to include a variety
of options;

197

• that the care services now required are too restricted. Assessment and care
planning diverts money to the professional without guaranteeing that the necessary
attendant services will then be available. We would add that assessment and care
planning should not be used to substitute for needed direct services such as respite,
transportation, day care, homemaker, home health and other essential care;

• that the emphasis on alternatives do not detract from the need to improve
institutional care for those who cannot live outside institutions. Therefore, the plan
must provide for public benefits not based on Medicaid criteria. Amove 200% of the
poverty line there should be cost sharing based on a sliding scale with assured levels
of protection for the community spouse;

• that the benefits for children and others should not require rehabilitation
potential as an eligibility criteria.

Although the President's revised plan requires only a minimum benefit of a
standardized assessment and an individualized care plan for those deemed eligible by
the states, OWL hopes that the federal matching rate of between 75% and 95% will
encourage states to develop comprehensive home and community based services. To
ensure that this occurs, the LTC benefits should be stated and guaranteed just as the
acute care benefits are.

In addition, OWL would like to see consumer safeguards included in the long-term care
plan like those in the acute plan. Such protections could include the creation of an
ombudsperson program.

It is also not clear how states will integrate the three LTC programs i.e. the new home
and community based services; the Medicaid residual community LTC (those currently
receiving Medicaid community LTC services who are low-income but who do not meet
the eligibility criteria of the new program), and the Medicaid institutional. This is not
required in state plans. We understand a revision to the President's plan would
establish two advisory groups-a federal group advising the Secretary of Health and
Human Services, and a state advisory group of consumers, providers, state officials
and others. We hope that this addition will facilitate states' integration of the
programs.

State Flexibility. OWL sees the following as positive outcomes of state flexibility:
States will design the home and community based services based on the needs of the
residents of that State. For example, the delivery of certain services will differ in
largely rural states from those largely urban. State advocates for the elderly believe
states can provide a better array of services (and services tailored to individual needs)
than any that may be mandated by the federal government. The federal government
(DHHS) would establish a national budget for the home and community based services
program and a formula for allocating funds to the states.

However, there is no additional guaranteed benefit to community services beyond the
assessment and care plan and availablity of personal assistance services for those
determined eligible by the states. It is hoped that with a high rate of federal match,
the states will have attractive options to develop comprehensive home and community
based services. OWL believes that a gate-keeping mechanism be an integral part of
the long-term care system from the beginning to assure needed services are received
and to avoid a provider-driven system.

Tax Incentives for Private Long-Term Care Insurance. The Older Women's League is
concerned that the tax incentives will perpetuate insurance policies that are costly and
beyond the financial resources of most older women. Accordingly, OWL opposes the
government subsidizing these policies, although it does support the adoption of strict
guidelines to protect consumers who are purchasing these policies.

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Research.

As the need for services are often not readily demarcated into acute and chronic
categories, OWL supports the establishment of a demonstration program for
Integrated models of acute and long-term care services. We support the ultimate
integration of the acute care and long-term care programs.

INDIVIDUAL ELECTION AT AGE 65 TO REMAIN IN HEALTH ALLIANCES

The Clinton plan provides for individuals to remain in a health alliance upon reaching
age 65 in lieu of moving to coverage under Medicare. However, the individual is
subject to a higher premium rate than younger participants. OWL believes that such
a premium rate for older individuals is inequitable and provides a disincentive, not
incentive, for remaining in a health alliance plan.

EARLY RETIREE PROGRAM

Protection for early retirees will assure that persons between the ages of 55 to 65
have health care coverage. This provision in the plan is of great importance to midlife
women who often find that when they are no longer in the workforce, for whatever
reason, they are usually without health care coverage. A guarantee that the federal
government will pay for 80 percent of their coverage is crucial to their protection.

LARGE EMPLOYER "OPT OUT"

OWL opposes an employer "opt out" of the plan. Such an approach encourages the
continuance of self-insured plans in businesses with younger, healthier workforces.
This discriminates against high risk individuals and perpetuates the current situation
in which poor health status is a barrier to employment. Although the Clinton plan
would require employers opting out to pay a subsidy, nevertheless, OWL believes that
large employers opt outs would make coverage more costly for small employers and
individuals as well as the government.

SINGLE PAYER OPTION

OWL applauds the single payer option on the state level as a first step. Our
organization has already developed a model bill that can be used for introduction into
state legislatures. However, the President's plan calls for states to apply for waivers
in order to establish a single payer system and to find revenue from "sources other
than those provided by this Act." These constitute a burden on states choosing the
single payer option. At a minimum, the new health care initiative should include
incentives to encourage single payer state level programs. Careful monitoring over
time will then allow comparisons among states selecting alternative strategies to meet
the plan's goals.

DECISION-MAiaNG REPRESENTATION AND ACCOUNTABILITY

OWL'S health principles call for women of all ages, income levels, and racial and
cultural backgrounds in decision-making positions. Under the President's plan, the
National Health Board will consist of seven members appointed by the President.
However, there are no provisions for types of representation. We recommend that the
plan clearly provide for an increased number of consumer advocates representing
diverse populations.

OWL supports the plan's mandate that the regional health alliance boards have an
equal number of employer and consumer representatives, and that an ombudsman
program is created to assist consumers who have problems with their health plans and
the alliance.

RESEARCH

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Overall, the provisions pertaining to research are a major step forward. However we
believe all research which is conducted should include breakdowns on the basis of
race, gender and age groups {in ten year increments) to take into consideration
biological and other differences.

The Older Women's League is pleased that the Administration has included as a
priority area for prevention research chronic and recurrent illnesses, including research
on Alzheimer's disease, cancer, cardiovascular diseases, bone and joint diseases, and
other chronic diseases and conditions. All of these conditions afflict older women in
particular.

Mental health research in the Presiden'ts plan will include women's mental health,
mental disorders in the elderly and their caregivers, and violence. Our research on
caregivers has found that caregiving takes a toll physically, economically, and
emotionally on those providing the care. We are pleased that the mental health needs
of caregivers are recognized. In addition, ending violence against women and the
elderly is part of OWL's national agenda.

OWL also approves of research on health and wellness promotion which includes an
emphasis on fitness for all ages, and fitness and aging.

Health Services Research will include effectiveness, quality and outcomes research,
research on consumer choice and decision making and information resources, and
evaluation of health care reform. These address one of OWL's health care principles
calling for research that looks at the correlation of the evolving health care system and
its social and economic impact.

TRAINING A NEW HEALTH WORKFORCE

While the administration's plan acknowledges the need to encourage more primary
care physicians and training for nurse practitioners, nurse midwives, and physician
assistants, OWL would also like to see chronic care workers, those who work as
home health and nursing home aides, included. These workers will be on the front
lines in providing long-term care services and need training and improved wages and
working conditions. We recommend that demonstration projects be developed that
look at the role of the chronic or long- term care worker— including the establishment
of career ladders— and integration of these workers in the care plan of the person in
need of services.

nNANQINQ

The Older Women's League believes that the financing of a health program should be
based on progressive approaches including employer payroll taxes, income taxes,
state and local resources, and modest co-payments. OWL is not opposed to the so-
called "sin" taxes, but is concerned that the excessive cuts to Medicare may affect
quality of care and create disincentives for health care providers to serve Medicare
patients. In particular, we would want to see a limit placed on the amount of costs
created by copayments for tests. In addition, we are troubled about the effect the
Medicare cuts will have on disproportionate share hospitals-those serving low-income
persons. Just as the plan contemplates creating incentives to support underserved
areas of the country or particular populations, such incentives should exist to
encourage ongoing services to Medicare recipients.

CONSUMER BILL OF RIGHTS

A consumer bill of rights should be provided throughout the entire system to
guarantee consumer grievance and appeal procedures as well as consumer
involvement on quality oversight and enforcement in the health alliances. Medicare,
and long-term care programs. There should be annual performance reports on

200

Medicare providers as well as the acute ccare plans and providers.

MEDICARE INTEGRATION

OWL would support the integration of Medicare into a single payer plan. However,
under the Clinton proposal, we are not prepared to comment on moving Medicare into
the current plan as a variety of concerns need to be addressed. OWL proposes
research on the implications of keeping Medicare separate from the health alliances.

SUMMARY

The Older Women's League commends President Clinton and Hillary Rodham
Clinton for their leadership in bringing health care reform to this point.

We are particularly pleased with the inclusion of long-term care as an essential
part of a universal health care plan. This is a vital concern for women who both
provide the majority of family caregiving and are most likely to require such care as
they age. Many women assume eldercare responsibilities at a time of crisis and may
continue to provide the quality care they feel their loved one deserves for years--with
no outside support. In addition, women are more likely than men to suffer from
chronic illness, while being least able to pay for health care.

To achieve optimal benefits, states must be assured adequate funds to offer a
full array of all long-term care services, including institutional as well as home and
community-based care.

The inclusion of prescription drugs in the President's plan is also an important
provision. Older women have an annual median income of only $8,139 and must
frequently forego purchasing prescription drugs that would alleviate their chronic
conditions.

OWL pledges to work with the Administration and you, the members of
Congress, to ensure that America's health care system provides universal coverage
that is affordable, equitable, and comprehensive. Throughout this century, reformers
have attempted to reach a goal of access to health care for every person in America.
This is our opportunity to ensure that this goal is realized.

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Chairman Stark. Ms. McSteen.

STATEMENT OF MARTHA MCSTEEN, PRESmENT, NATIONAL
COMMITTEE TO PRESERVE SOCIAL SECURITY AND MEDICARE

Ms. McSteen. Mr. Chairman, members of the committee, I am
pleased to represent the National Committee this morning.

Since we have not yet seen the legislative language of the plan,
my comments are necessarily preliminary. The Clinton administra-
tion, with its comprehensive proposal, has moved the health care
debate forward by an unprecedented leap, providing a window of
opportunity for the Members of Congress such as you, Mr. Chair-
man, and other members of the subcommittee, who have worked
for so many years to improve our health care system.

I would like to talk today about three issues: The prescription
drug and long-term care provisions; financing; and, last, the Na-
tional Committee's concerns about equity.

The National Committee applauds the President's proposals to
expand Medicare to cover prescription drugs and to provide funding
for community- and home-based care for the severely disabled.

Long-term care is an integral part of the health care continuum,
and this Federal-State matching grant for home- and community-
based care is a critical first step. If seniors must choose. National
Committee members, 8 to 1, want a home- and community-based
benefit.

Our greatest concern with the administration's plan, as we know
it, is the ambitious reduction in Medicare spending of $124 billion
over 5 years. We question whether it is possible to reduce the pro-
gram to such a degree without seriously hollowing out the program,
leaving an empty shell.

At a minimum, reductions in Medicare spending must go hand-
in-hand with reductions in private sector, health care spending. It
is unclear whether reductions in private sector health care spend-
ing can or will take place as quickly as predicted.

Many of the proposed Medicare savings are increases in already
high, out-of-pocket costs for Medicare beneficiaries. We believe
these higher out-of-pocket costs could create an excessive burden
on many seniors who may also pay a higher premium for prescrip-
tion drug benefits.

The National Committee would like to see a mechanism to ear-
mark savings from Medicare reductions for the Medicare prescrip-
tion drug benefit and the long-term care benefit.

The administration's proposal to provide health security for early
retirees between 55 and 64 raises important issues that Congress
should consider. Without question, some in this age group of early
retirees are vulnerable to losing health insurance and could greatly
benefit from the proposal.

We encourage Congress to address the problem of this age group
in a manner that does not adversely impact the Social Security and
Medicare programs or create disparities in the treatment of retir-
ees.

With regard to out-of-pocket costs, it appears that the health
care reform plan treats Medicare beneficiaries inequitably. Non-
Medicare beneficiaHes would have a cap on total out-of-pocket costs

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for deductibles and copayments and better mental health and pre-
ventive care benefits than Medicare beneficiaries.

Medicare beneficiaries will also pay more in premiums than
working Americans.

The administration would mostly leave untouched the tax break
given to employer health insurance contributions and even expand
it to the self-employed. But the administration stops short of ex-
tending a similar tax break to other Americans.

Moreover, we are strongly opposed to increasing the part B pre-
miums on upper-income beneficiaries, while leaving the tax deduc-
tion in place for employer-paid health insurance for upper-income
employees.

In conclusion, we look forward to reviewing the administration's
bill and continuing to work with the White House and the Congress
as the discussions on health care reform continue.

We have a responsibility to let your constituents and our mem-
bers know exactly how a new health care proposal affects them.

Members heard the President's speech at our events and indi-
cated so by raising their hand. But when asked by a show of hands,
they did not know whether the administration's plan would affect
them personally.

Thank you very much. Thank you.

[The prepared statement follows:!

203

TESTIMONY OF MARTHA McSTEEN, PRESIDENT
NATIONAL COMMITTEE TO PRESERVE SOCIAL SECURITY AND MEDICARE

Mr. Chairman, members of the Committee, I am Martha McSteen, President
of the National Committee to Preserve Social Security and Medicare. I am pleased
to be here today to provide some initial reactions to the Administration's draft
health care proposal as seen from the Medicare beneficiary perspective. Since we
have not yet seen the legislative language of the plan, my comments are
necessarily preliminary.

Universal Coverage

The Clinton Administration with its comprehensive proposal has moved
the health care debate forward by an unprecedented leap— providing a window of
opportunity for the Members of Congress, such as you, Mr. Chairman, who have
worked for many years to improve our health care system. It is exciting that
within the foreseeable future there could be universal coverage— not just access to
health care— with a generous standard benefit package for those unaer 65. It is
long overdue and seniors will be only too pleased to know that their children and
grandchildren, too, will be protected against financial devastation when illness
strikes.

I would like to talk about three issues:

• The prescription drug and long-term care provisions

• Financing, and lastly,

• National Committee concerns about equity

Prescrlptioii Drugs

The National Committee applauds the President's proposal for expanding
Medicare to include prescription drugs. Given the generous benefit, some seniors
may accept a possible premium of $8-$ 12 a month, but for others even that
could be difficult. Most seniors with retiree health benefits provided by a former
employer, however, may see this as just an extra cost because they already have
some prescription drug coverage. Poor Medicare beneficiaries, we understand,
will be protected from the increase in premium costs by Medicaid, Qualified
Medicare Beneficiary program or the Specified Low-income Medicare Beneficiary
program.

Long-Term Care

The National Committee likewise applauds the President for including long-
term care in his proposal. Long-term care is an integral part of the health care
continuum and this federal-state matching grant for home and community-based
care is a critical first step. While seniors also need long-term care in nursing
homes, $34 billion toward home and community-baseacare is a good beginning.
If they must choose. National Committee members, eight to one, want a home and
community-based benefit over an Institutional based benefit of equal funding size.

Thirty-four billion dollars comes to less than $1,000 per month for the
approximately three million severely disabled people estimated to be eligible.
This does not include the state match of between 5 to 25 percent or the sliding scale
co-payment However, much of this amount could be absorbed by the cost of the
important function by care managers to perform the assessments and develop care
plans. An average of $1,000 is not excessive considering that adult day care may
cost $35-40 a day and home care at least $15-25 per hour depending on the
geographic area. Nonetheless, this grant to states would clearly help support
efforts already under way in many states. The shorter the implementation period
the better.

The National Committee would oppose a premium on just Medicare
beneficiaries. If a premium is necessary to help finance this benefit, the National
Committee strongly recommends that all taxpayers be charged a small premium—
not just a surcharge on Medicare premiums— since the benefit is available for
severely disabled people of all ages.

National Committee also supports relaxing the Medicaid asset test for
nursing-home bound individuals and increasing the monthly allowance to
nursing home residents. These provisions provide more dignity to the lives of
this population. We are pleased that Federal standards for private long-term care

204

insurance are pcirt of the proposal — something the National Committee has long
supported.

While the Administration proposal provides small improvements to
Medicaid nursing home coverage, it says nothing about the need for inaeased
financing needed to improve care in nursing homes. Both licensed nurse and
nurse aide staffing is inadequate in nursing homes across the country. The
Pepper Commission recognized that "access to quality care would require higher
rates than many Medicaid programs now require."

Financing

Our greatest concern with the Administration's proposal, as we know it,
are the ambitious reductions in Medicare of $124 billion over five years in order
to bring down the rate of increase to 4.1 percent by the year 2000. We question
whether it is possible to reduce the program to such a degree without seriously
hollowing out the program, leaving an empty shell. Overall, Medicare and
Medicaid savings are expected to finance more than half of the new government
spending on health care reform.

At a minimum, reduaions in Medicare spending must go hand in hand
with reductions in private sector health care spending. It is unclear, however,
whether reduaions in private sector health Ccire spending will take place as
quickly as the Administration envisions. Certainly, there is a lot or waste in the
health care system. If we try to reduce costs too rapidly, however, we could
disrupt the health care system. While the disruptions may only be short-term, it
coula cause public disenchantment with health care reform during the critical
start-up phase.

Many of the proposed Medicare savings are not cuts in reimbursements to
doctors ancl hospital, but increases in already high out-of-pocket costs for
Medicare beneficiaries. According to one Administration estimate, increases in
out-of-pocket costs could total more than $45 billion over five years. These
savings are expected to come from four areas, setting Part B premiums into law,
20 percent co-payment for laboratory tests, 10 percent co-payment for home
health services 30 or more days past a hospital stay, and from requiring higher-
income beneficiaries to pay more for their coverage. We believe these higher
out-of-pocket costs could create an excessive burden on many seniors who may
also pay a higher premium for prescription drug benefits.

Also, we are uncomfortable with the seemingjy conditional connection
between the new presaiption drug and long-term care benefits and reductions in
Medicare. What will happen to these benefits if the saving in Medicare are not
realized? We are also concerned that these new benefits may be cut back if other
parts of the plan are more costly then anticipated. The National Committee
would like to see a mechanism to earmark savings from Medicare reduaions to
guarantee that they will be used for the Medicare prescription drug benefit and the
long-term care benefit. We believe this could be done by making it a part of the
budget enforcement provision.

The Administration's proposal to provide health security for early retirees
between 55 and 64 raises important issues that Congress should consider.
Without question, this age group of early retirees is vulnerable to losing health
insurance and will greativ benefit from the universal coverage plan which
guarantees access to health insurance. However, we are concerned that
providing a government subsidy for 80 percent of premiums would create a
significant incentive to leave the job force. Reductions in contributions to the
Social Security and Medicare trust funds could have a detrimental affea on the
future of these funds. We are giving retirees a double message. On the one
hand, we are gradually postponing Social Security retirement age to 67
beginning in the next century, and, on the other hand, we are encouraging early
retirement by subsidizing health benefits. We also are concerned that it creates a
disparity between retirees under and over age 65.

Medicare savings of $22 billion over five years will come from
implementing a long overdue outpatient hospital prospective payment system.
We are also counting on the Administration keeping in the plan an equally
overdue reform of the beneficiaty co-payment formula for outpatient hospital
services so that beneficiaries pay no more than 20 percent of what Medicare
allows. Currently, beneficiaries pay 20 percent of the hospital-computed charges.

205

Equity Between Medicare and Non-Medicare Beneficiaries

There are four specific equity concerns:

1) out-of-pocket costs

2) premiums

3) tax breaks

4) sharing the costs for health care reform

The National Committee agrees with the President that Medicare should be
left out of the larger system for now until the new system has been established
and fully implemented. However, the two programs should be identical.
Otherwise, many Medicare beneficiaries may join the health alliances not
because they are impressed with the health care but because they can get more
coverage.

Out-of-pocket costs. In spite of the welcome new prescription drug and
home and community based care benefits, it appears that the health care reform

Elan treats Medicare beneficiaries inequitably. Non-Medicare beneficiaries would
ave a cap on total out-of-pocket costs for deductibles and co-payments, no
balance billing and somewhat better mental health and preventive care benefits
than Medicare beneficiaries. The new Medicare benefits are also partially offset
by proposed inaeases in co-payments. It would be ironic if the 500,000 seniors
who do not have Medicare and early retirees under health care reform actually
receive better health insurance than Medicare beneficiaries.

Premiums. Medicare beneficiaries will also pay more In premiums than
working Americans. Under current law. Medicare premiums are $36.60 per
month this year and $41.10 per month next year. In addition. Medicare
beneficiaries could pay $8 or more per month for prescription drug coverage.
PresCTiption drug coverage will be added to Part B which is partial^ financed by
a premium whicn generally covers 25 percent of program cost. In contrast,
under the draft plan, total premiums for working individuals under health care
reform are estimated to be only $30 per month at the most, $15 to $20 less per
month than Medicare beneficiaries.

We assume that Medicare beneficiaries will still have to pay the sjime
higher premium even if they join an alliance health care plan. This will be even
more unfair if upper income beneficiaries are also required to pay higher Part B
premiums because the Administration apparently would not impose nigher
premiums on upper income non-Medicare beneficiaries.

Tax breaks. Despite the recommendation of many managed competition
advocates, the Administration would mostly leave untouched the tax break given
to employer health insurance contributions and even expand it to the self-
employed. But the Administration stops short of extending a similar tax break to
other Americans, including Medicare beneficiaries, who do not have generous
employer paid health benefits. If an employer pays the whole health care
premium, the employer contribution would continue to be tax free for employees
while many workers and Medicare beneficiaries will pay premiums in after-tax
dollars. Moreover, we are strongly opposed to inaeasing the part B premiums
on upper income Medicare beneficiaries while leaving the tax deductions in place
for employer-paid health insurance for upper-income wage earners.

Sharing the costs for health care reform. Most working Americans will
pay little or nothing for health care reform unless they smoke. In contrast.
Medicare beneficiaries will have an increase in the Part B premium and new co-
payments for home health care and labs and higher income beneficiaries will
pay even more. The proposed Medicare cuts to providers also could "cost"
Medicare beneficiaries in terms of access and quality.

Remaining Questions

Many questions remain unanswered. For example, can Medicare
beneficiaries freely go in and out of the health alliance system during the annual
enrollment period, or are they restricted to a one-time decision at age 65? The
National Committee recommends free access to the health alliance system at any
age. Allowing seniors to try out the new system may help break down resistance
to change if the two systems eventually become one.

206

Will Medicare beneficiaries pay more if they receive health insurance
through a health alliance plan versus going with Medicare? It is essential that
Medicare beneficiaries, whether brought in under a state-wide plan or joins a
health alliance voluntarily, is guaranteed the same level of benefits for the same
cost as under Medicare.

What will be the impact of the new system on quality of care? The
National Committee applauds the call for consumer information, internal quality
improvement proCTams and the collection and feedback of performance and
outcomes data to nealth plans to assist in this process. However, are we to
understand that all quality assurance will be internal and educational, and that
there will be no reporting requirement about poor performance and no
sanctioning of such providers and practitioners?

What process will be put in place to establish premium limits? The
National Committee supports some form of global budgeting and reasonable
premium rate caps as a way to contain health care costs. But the process to
establish such limits must include a negotiation process by representatives from
affected parties so as not to affect quality of care.

What wai the effect be on medi^ap policies besides changes to reflect the
new prescription drug benefit? If Medicare beneficiaries are allowed to go in and
out of the Medicare program, medigap policies should be available without
waiting period for pre-existing conditions. Will the premium controls also apply
to medigap? Will Medicare beneficiaries who choose alliance coverage be
required to pay the Medicare Part B premium which is currently optional? What
about upper-income Medicare beneficiaries, will they pay higher Part B
premiums even if they choose alliance coverage?

These are just a few of the many questions remaining. We hope that
some of these will be answered in the legislative language soon to be released.

Conclusion

The National Committee supports health care reform including a
prescription drug benefit for seniors and long-term care for all ages. We applaud
the President's initiative and look forward to continuing to work with the White
House and the Congress as the discussions on health care reform continue.

207

Chairman Stark. Thank you.

I just wanted to start out by calling attention, if I could ask the
members and Ms. Brown, to refer to page 2 of the AARFs written
statement; and I just wanted to review a few points here, because
as we will encourage other groups to do and as the Chair has often
been admonished, if you don't like this plan, what do you like?

And the AARP has forthrightly suggested what they do mean.
They want a Federal, as they say, guarantee. And they want — I
presume by "systemwide cost containment," you mean "nationwide
cost containment." And they want comprehensive benefits — I don't
think there is any person on this subcommittee that has a limit to
the comprehensiveness of the benefits. We have some feeling we
may not be able to pay for the benefits that would fit into our defi-
nition of that.

You want delivery system reforms that increase access. Again, I
have a hunch that you would find unanimous support. And you
want broad-based, fair, and affordable financing. We might have
some trouble defining just what that is. But in general we would
agree with you.

You then get on, in the next paragraph, at least to the nubbins
of the chairman's delight, and that is in your "Health Care Amer-
ica." Your centerpiece is a strengthened — if I am quoting prop-
erly — and expanded Medicare program through which everyone
would be eligible for a comprehensive, nationally mandated pack-
age of medical and long-term care. And that employers would be
required to contribute to the cost of their workers' benefits either
through the expanded Medicare program or through private cov-
erage.

I gather by that, that you would be comfortable with making
Medicare a broader option for nonsenior citizens in this country. Is
that correct?

Ms. Brown. Yes. In our Health Care America, we had the same
benefits available to everyone. It was a more expanded program
than the President's program. But it was for everyone, yes, sir.

Chairman Stark. I am afraid probably more expensive than both
you or I can figure out how to pay for. But I applaud you for set-
ting us a high goal. And I am comfortable with that.

Ms. Brown. We did, in fact, propose some funding for it, sir, be-
cause we felt that, to be honest, we had to do that.

Chairman Stark. In the limited time on the first go round, I
would like to ask all of you just if you could answer as briefly as
possible; and we will get plenty of time to let you expand on the
answers.

But the administration's plan proposes to cut about $125 billion
from Medicare. That number may change when we see the num-
bers, but let us assume a large amount will come from Medicare.
And the savings generated would be used to support a Medicare
prescription drug benefit, which, as I read the original plan, would
indeed be an entitlement.

But the long-term care is a block grant to States and not an enti-
tlement. And I wonder, as representatives of seniors groups, wheth-
er you would support using savings from the Medicare program to
support a block grant, rather than an entitlement, and whether
you think that people you represent really understand that the

208

(
plan at this point does not include a new Medicare long-term bene-
fit but a more general prospective benefit to the country.

And if the plan includes a new major expenditure for long-term
care, would you not prefer that the initial benefit be to protect indi-
viduals against financially devastating, long-term care in nursing
homes rather than supplementing short-term, occasional visits by
home health care providers?

Ms. McSteen, do you want to start?

Ms. McSteen. Yes.

Chairman Stark. Is that your answer?

Then I will

Ms. McSteen. Not at all. Not at all. You touched on a number
of things that are very key to seniors. And the National Committee
members' average age is 68, and so they are very interested in
long-term care and insist that that be a part of the package.

Although in our polls, they do show that, 8 to 1, they would rath-
er have the short-term care rather than the long-term care, be-
cause most people like to be at home if at all possible.

Chairman Stakk. So they would prefer home health care rather
than long-term custodial care.

Ms. McSteen. Yes. But I recognize that there are more people
who would benefit by home care than those lower percentages that
go to nursing homes. I do recognize that.

Chairman Stai^k. I want to ask you, Ms. Brown, that I have a
hunch that — because I am waiting for Ms. Brown to answer. So I'll
ask, Ms. Brown, if you will excuse me for just a minute. I have a
hunch that Ms. McSteen's constituency, on average, is somewhat
lower income than yours. But now having prefaced that, I would
ask you how you would answer that question.

Ms. Brown. I don't know the answer to that. But the average
member of AAKP is a 65-year-old woman who lives on Social Secu-
rity and has about $20,000 in the bank. So we maybe have the
same constituency.

The older American person, the thing that they are interested in,
and that their children are interested in, is enabling them to stay
in their home as long as they can.

And the second great fear is that if they go into a nursing home,
they don't want to have to go broke.

Chairman Stahk. So you put that at the second level, rather
than the first, as you interpret what you are hearing now.

Ms. Brown. Yes. Obviously, we would like it all; but if we can't
have it all

Chairman Stark. Ms. Porter.

Ms. PoRTEii. Well, long-term care is very important to women be-
cause they are the ones who provide the majority of care giving.

And often women will leave the work force or give up a good deal
of their time, their physical health, in order to do the care giving.

So I would say that the home- and community-based care is very
important, and that we do have a full array of care.

As the President's plan includes only the assessment and the
care plan, our concern is that there be some sort of guarantee be-
yond that, that the person gets the services that they need and
that it is not just the basics and they get nothing further than that.

Chairman Stark. Thank you.

209

Mr. Thomas.

Mr. Thomas. Thank you, Mr. Chairman.

Ms. Brown, I want to go back to page 2 in terms of the Hst of
specifics that you have outhned in your key elements of health care
reform. I need to know if what you say is what you mean. It says
here, "A Federal guarantee that all individuals have access to af-
fordable, high-quality health and long-term care."

That doesn't mean to me that the Federal Cxovernment guarantee
coverage. When you say "access to guaranteed coverage" do you
mean access?

Ms. Brown. No, sir. We mean that they not only have access to
it but they, in fact, do receive it.

One of the problems we are seeing now is in Florida — we just got
a report the other day that the Area Agency on Aging has 20,000
requests that they cannot fill. So it is not to be

Mr. Thomas. OK. So it is guaranteed.

Again, farther down, you say, "Health delivery system reforms
that increase access to care." So I guess there you don't really
mean opportunity as the words "increased access" implies to me,
but you mean guaranteed coverage as well.

Ms. Brown. Yes, sir.

Mr. Thomas. OK. Semantically you may want to change that to
indicate that you want mandatory, guaranteed government offer-
ings there, instead of "access to." In the terminology that we use,
there is a world of difference.

Ms. Brown. OK.

Mr. Thomas. On pages 3 and 4 in your testimony, beginning on
page 3, you indicate that you must have systemwide cost contain-
ment and universal coverage or you are not going to support the
President's program.

It seems to me these go hand-in-hand, because why would you
make all of those enormous cuts if you aren't going to get some-
thing for it? You want universal coverage and cost containment.

Let me ask you a more specific question. If you get the universal
coverage and cost containment but the drug benefit portion and the
long-term portion, because of costs or other reasons, gets dropped
by the wayside in the process, do you believe your group would con-
tinue to support a plan? Can you support a plan that makes the
Medicare, Medicaid cuts, provides universal access, and promises to
reduce costs, but doesn't offer a significant or reasonable long-term
care and drug program?

Ms. Brown. First, just to comment about the cost containment,
we believe that if there is not universal cost containment across all
ages, that we are kidding ourselves and we will continue to have
a shell game here.

Insofar as the drug proposal is concerned, our research as recent
as 3 weeks ago indicates that among people of all ages — this is not
just older people, but all ages — support for the bill drops dramati-
cally if you take out drugs and/or long-term care.

The American public want that.

Mr. Thomas. Would AARP oppose the plan if those were
dropped?

210

Ms. Brown. I cannot say what AARP would do. As you know, we
have a process we would go through. We would be very loath to do
that.

Mr. Thomas. It would be required to reevaluate at the very least.

Ms. Brown. Absolutely.

Mr. Thomas. OK.

Ms. Porter, on page 1 you indicate that your organization wel-
comes President Clinton's health care reform proposal. And then in
the next sentence you say: "We view the plan * * *"

Gee, I would like to have the copy that you have, if you have a
specific plan and a proposal. You outlined the long-term care roller
coaster in terms of what the task force thought it might do or
might not do in terms of rumors. But then you went on and said
that you were pleased with the final choice in the plan.

How can you make that statement? Do you know what is in the
final plan?

Ms. Porter. Well, just what was the outline of the plan that we
all have seen.

Mr. Thomas. So it may be subject to change.

Ms. Porter. Yes, as I understand it.

Mr. Thomas. OK. It was pretty declaratory, the way you pre-
sented it. I wanted to know if you knew something I didn't.

Ms. Porter. No. Actually, in my written statement, it said we
examined the plan that was dated September 7. So my remarks are
based on that particular version.

Mr. Thomas. Unfortunately, we are all operating off of dated ma-
terial, and it may or may not be accurate.

Ms. McSteen, you indicated in your proposal on page 2, "Cer-
tainly, there is a lot of waste in the health care system."

The President's proposal tends to fund all of the changes in
terms of the universal coverage, and the other structure, basically
through removal of waste, fraud, and abuse in Medicare and Med-
icaid and a tobacco tax.

Do you believe there is that much waste, fraud, and abuse in the
current Medicare and Medicaid structure to fund $240 billion in
other programs?

Ms. McSteen. Well, of course it is very difficult to answer the
question specifically because we don't know what the plan will real-
ly have of interest.

Mr. Thomas. No, it is not a question of what the plan is. It is
whether or not there is $240 billion of waste, fraud, and abuse in
Medicare and Medicaid.

Do you believe there is?

Ms. McSteen. It has not been demonstrated.

Mr. Thomas. OK. So if it can't be demonstrated and can't be
found, the program can't be funded. That is exactly what the First
Lady said.

Then, finally, on page 4, at the top of the page: "It is essential
that Medicare beneficiaries, whether brought in under a Statewide
plan or joins a health alliance voluntarily, is guaranteed the same
level of benefits for the same cost as under Medicare."

Even if current Medicare recipients are subsidized and they are
not paying the full cost of that medical care either in terms of de-

211

livery or in administration, would you like to maintain a subsidized
structure?

Do you mean that we finally get Medicare on a real world cost,
both in terms of administrative and cost of delivery, and then allow
them to go either way?

Ms. McSteen. Well, I think the coverage should be the same.
And if there is inequity in the cost and it is not balanced, then we
should look at it and raise questions about it.

Mr. Thomas. Thank you very much.

Chairman Stark. Mr. Cardin.

Mr. Cardin. Thank you, Mr. Chairman.

First let me thank all three of the witnesses not just for their
testimony today but for the role that you have played for many
years in bringing to the national attention the need for comprehen-
sive health care reform.

You were very kind in your statements about what has been
brought forward by this Congress and by this administration. But
your organizations have played critical roles in sensitizing the need
for health care reform.

I think all three of you have mentioned the problems with the
differences between the Medicare program as suggested by Presi-
dent Clinton and what would be offered or required under the pri-
vately insured plans through the alliances.

There are different benefits, different deductibles, different rules
for cost containment. And yet you appear reluctant to suggest — and
some of you have opposed — Medicare being part of the health alli-
ance.

I am wondering why you are reluctant to have Medicare part of
the same system in which the privately insured marketplace will
be. Same rules, therefore same cost containment rules, Medicare
would not be discriminated against and would have the same bene-
fits as the privately insured plans would.

Ms. McSteen. Well, Medicare has been a very successful pro-
gram for seniors. Of course, there are always concerns and room
for improvements.

But it is a well-functioning program overall and it is the one na-
tional program that we can look to in terms of what the future
might hold on a broad base.

What we have said is that we would like to see Medicare remain
as is until we find that another type of plan, universal coverage,
is in place and working, and then consider blending the two.

Mr. Cardin. You have suggested changes in the oenefit packages
of Medicare. Let's talk about the administration of Medicare.

Are you satisfied by the way the claim forms are handled and
Medicare is structured administratively?

Ms. McSteen. There are very few people who would say yes to
that. And we have all — I think most of us at the table here have
been working with HCFA to make sure that the EOMB was
changed. It is vastly improved.

But the redtape and the paperwork is excessive. No, we are not
satisfied with that; but that is something that can be corrected if
we put our minds to it.

Mr. Cardin. And the cost shifting that takes place in which pro-
viders who handle a lot of seniors are discriminated against, are

212

you satisfied that that would not just continue under a system in
which Medicare is separated from the great bulk of people's cov-
erage?

Ms. McStkp:n. Not with the focus on straightening it out. There
has not been enough attention, and I think HCFA would admit
that. To correct abuses, more money and attention is needed.

Mr. Cardin. Ms. Brown.

Ms. Brown. It does appear that, at the moment, about 65 cents
is spent on Medicare patients for every dollar spent on private in-
surance patients.

So the divergence is great, and we are concerned.

Mr. Cardin. So why not take the lead and be part of the same
system that the privately insured employed marketplace would be
part of?

Ms. Brown. I think our major concern is that we have a program
that is working, as Ms. McSteen has said, that is currently work-
ing; and it is working well. Older people are going to have, I think,
a more difficult time relating to the new types of programs. They
are not enrolled in HMOs in communities the way younger people
are. And I think we might be biting off more than we can chew.

Mr. Cardin. So we can take a risk for those people who are not
eligible for Medicare, but those that are in the Medicare system we
shouldn't change?

Ms. Brown. No, I don't think we are saying that. I think we are
saying that we want everyone to have opportunities for universal
health care, but perhaps now is not the right time to make that
change for Medicare. We would like

Mr. Cardin. Ms. Porter might be a little more friendly toward
this.

Ms. PORTKR. Well, as our members have indicated, that if we had
a single-payer approach, then we would like to see Medicare inte-
grated into a single-payer system.

However, under the proposed alliances or the President's plan,
we are not sure of the ramifications of what it would mean if Medi-
care were integrated. So we would prefer, at least now, not to have
it integrated.

Mr. Cardin. I am not sure I understand that. Maybe we could
expand a little bit more.

Under the single-payer plan, there is certainly many unanswered
questions on how the delivery system is going to be organized. Yes,
there is one payer; but we are not sure whether the delivery sys-
tem will be through local plans or whether it will be through a na-
tional Medicare type plan.

So why are you reluctant to join the rest of us if we have a mul-
tiple-payer plan?

Ms. PoRTKR. The concept of the regional alliances are an
untested ground in which we will be journeying forth. And we don't
know what all of that means.

Whereas, with the single-payer approach we do have a model and
we advocate for a single eligibility criterion and a single-tier sys-
tem and we would see that the gamut of the age groups as well
as the services could be met under a single-payer approach.

But we are just not sure with the President's approach.

213

Mr. Cardin. But the model is not in America. I don't know which
model you are referring to on a single-payer.

Ms. Portp:r. Pardon?

Mr. Cardin. The model being Medicare that you are referring to,
what is the model? I didn't know we had a model on the single-
payer.

Ms. PoHTKR. Well, the Canadian approach.

Mr. Cakdin. ok Thank you.

Chairman Stark. Mr. Kleczka.

Mr. Klkczka. Thank you, Mr. Chairman.

Ms. Brown, your organization — and I believe Ms. McSteen, your
organization — has some problems with part B being based on in-
come.

Could you further expand on your opposition to that portion of
the proposal?

Ms. Brown. Well, our concern with that, sir, is that it is only
done with Medicare beneficiaries and not with everyone and that
we would like to see that same kind of test for all individuals
under health care reform, not only Medicare beneficiaries.

Mr. Ki.KCZKA. OK.

Ms. McSteen.

Ms. McStkkn. That there would be a premium across the board
and not just on seniors. It would be a matter of equity and fairness
to make certain that everyone pays for whatever they receive.

And the part B premium would as it has been in the past, be
continued. But the raising of the premium begins to cast doubt on
how that really impacts on seniors individually.

Mr. Kleczka. OK. But my assumption on the proposal is that
high-income seniors will pay a bit more for part B versus those who
are surviving on less income.

Ms. McStkkn. And if they go into an alliance it is assumed that
they would also pay an additional amount. So that is where you
have the trouble.

Mr. Kl.KCZKA. OK, but the proposal wouldn't do both. Individuals
wouldn't stay on Medicare and also get a policy with the alliance.

Ms. Brown. But the issue is, will people who are not in Medicare
also be required to pay the additional premium?

Anything that is done with seniors

Mr. Klkczka. Above and beyond the 20 percent we are reading
about?

Ms. Brown. Right. Our concern is it has got to be fair and equi-
table across all ages.

Mr. Klkczka. OK. I understand that.

Chairman Stark. Will the gentleman yield?

Mr. Klkczka. Sure.

Chairman Stark. If I could get a clarification, income relating,
as I refer to it, the old catastrophic saw — as long as it is done for
everyone, for a youngster like Mr. Kleczka, and old folks like me,
and you in between — that as long as everybody pays something in
relation to their income, you would not object for the seniors. It is
just that if we only did it to the part B premium, for example, that
you would object.

Am I restating that?

214

Ms. Brown. The research with our members indicates to us that
one of their major concerns is that the payment be fair and equi-
table across all ages.

Chairman Stark. Thank you for letting me clarify.

Mr. Kleczka. Ms. Porter, your organization, in its testimony, ba-
sically is advocating more in most areas of what the President is
proposing, a higher basic package, more subsidies for the low-in-
come, things of that nature.

I don't see how your organization would pay for the extra bene-
fits. In fact, my problem with the Clinton plan is I don't think his
revenue measures will pay for his plan.

But what would your organization suggest to this committee and
to the Congress as to what other revenue sources we could call
upon to fund the package?

Ms. PORTKR. Actually, I'm not prepared in terms of being able to
go to some additional revenue sources.

I would be happy to draft something and submit it to you later.
But I am not prepared right now in terms of where we could come
up with some more.

But — our request was to talk about the strengths and weak-
nesses of the President's plan. And so we did look at the plan and
look at where there were gaps. And these were among our rec-
ommendations — where we saw that there were some gaps in his
plan.

And so we are responding to the committee — subcommittee's re-
quest.

Mr. Klkczka. ok. But in viewing the President's plan as it was
presented to us, do you believe that his funding mechanisms are
sufficient to pay for the costs that he is advocating?

Ms. Porter. Again, I don't have that expertise. I am reading
what is in the paper and other estimates by the CBO and other en-
tities that have that ability to do that. It is beyond my capacity.

Mr. Kleczka. Well, if you could send something down to the
Committee on how to pay for the additional benefits you are asking
for, we would surely like to see those.

[Due to limited time and resources, Ms. Porter is unable to re-
spond to Mr. Kleckza's request. I

Mr. Kleczka. Last, in the statement from the National Commit-
tee — and let me quote from Ms. McSteen's testimony — "However,
we are concerned that providing a government subsidy for 80 per-
cent of the premiums would create a significant incentive to leave
the job force."

This is the early retirement provision. "Reductions in contribu-
tions to the Social Security and Medicare trust funds could have a
detrimental effect on the future of these funds."

This is one of my concerns with the plan. I totally agree with the
statement. However, in the testimony, both OWL and AARP favor
this portion of the bill, that is the early retirement age 55 to 64
provision.

Do your organizations share the concern that the National Com-
mittee has brought forth today?

Ms. BitoWN. We have some concerns with that portion of the bill,
and that is that people who do not have 40 quarters, notably older
women, divorced women, will not get that benefit.

215

We could have a situation where a husband and wife divorce and
the husband, because he is an early retiree, he is going to get the
benefit and his wife and children are going to be sitting on the cor-
ner.

Mr. Kleczka. ok But the larger concern, I think, coming from
the National Committee, which is so true, is that reductions in con-
tributions to the Social Security Medicare trust funds could be im-
paired because you have more of the work force leaving, more of
the contributors leaving.

Ms. Brown. I don't — we will send you an answer to that. I don't
think that our research is concerned with those numbers. But we
will send you an answer to that, sir.

[The following was subsequently received:]

The adminislration estimates that between 350,000 and 600,000 individuals be-
tween the ages of 55 and 65 would take early retirement as a result of the Presi-
dent's proposal. While the loss of these workers would reduce Social Security and
Medicare trust fund revenues in the short term, we understand that the "recapture"
tax on employers who currently pay for retiree health benefits would flow into the
trust funds to make up for the loss. In the long run, younger workers are likely to
fill the jobs left by older workers, and they and their employers will then contribute
to the trust funds.

Mr. KI.ECZKA. OK As a person who has just received the AARP
mailing to join, I am concerned with the early retiree provision. So
I hope you would look at that.

I did throw it out, by the way.

Ms. Porter.

Ms. Porter. As I understand, part of the reason for why the
President's plan includes this provision is to provide protection for,
in reality, those people that are in early retirement situations
where they may be subject to either losing what their health care
benefits are or their employers are finding it more difficult to cover
it.

So this was put in as a means of protecting those people that are
actually already in that situation or will be in the situation without
estimating what would happen to their Social Security contribu-
tions.

But it is a reality that there are a number of people that are in
that situation, between the ages of 55 and 65.

Mr. Kleczka. Don't you believe that this policy, should it be
adopted by Congress, would also provide for an incentive for people
to retire early, not only covering those who are already moving out
the door but for a middle executive looking at this?

The two concerns are, is there enough income to provide for the
family until he or she gets Social Security at 65, and, health care.
Once you provide for the health care, paid for 80 percent by the
taxpayer, I think a lot more people are going to be looking more
favorably in retiring early.

Ms. Porter. I suppose that is a possibility, but there is still the
part of the American work force that wants to continue working as
long as possible.

We already have studies that we know people don't like to retire
early, but just as well, incentives might persuade them to.

But as far as the American work force, studies indicate that they
prefer to work as long as possible.

Mr. Kleczka. Fine.

216

Thank you all very much.

Chairman Stark. Mr. Grandy.

Mr. Grandy. Thank you, Mr. Chairman.

Ms. Porter, your organization is a signatory to the letter that I
referred to in my opening remarks. Are they not?

Ms. Porter. Yes, sir.

Mr. Grandy. What is the name of this organization?

Ms. Porter. Of our organization?

Mr. Grandy. No. I know the name of your organization. I want
to know the organization representing a broad range of American
public that wrote this letter, which, by the way, has no letterhead.

Ms. Porter. It is the organizations that have signed on to the
letter.

Mr. Gi^ANDY. But it is not — it is an ad hoc group; is it not?

Ms. Poin'KR. Yes.

Mr. Grandy. So there is no executive director, there is no ongo-
ing staff. I see.

Who wrote the letter?

Ms. Porter. It originated with — I believe it probably originated
with Citizen Action, as far as the first draft of the letter.

Mr. Grandy. To your knowledge, did the White House have any
role in preparing this letter?

Ms. Porter. Not to my knowledge.

Mr. Grandy. OK. Let me ask you about the assertion that you
made in your first contention that basically says that because there
is no requirement under the Cooper-Grandy bill that emplovers ac-
tually contribute a portion of the cost of health insurance tor their
employees, that individuals will then be unable to afford coverage
and would continue to be uninsured.

Let me ask you then, if that is true, can you comment on the rel-
ative differences between the low-income assistance program in the
Clinton bill and in the Cooper-Grandy legislation and why one is
better than the other?

Ms. Porter. Well, I must admit, I don't understand entirely how
the low-income subsidies will work in the Clinton plan. And I think
a lot of us have those questions, that we don't understand how the
subsidies will work.

Mr. Grandy. Well, that is a legitimate point, by the way, because
a lot of us are still groping with what we know are the contentions
but not necessarily the final details.

Let me just point out a couple of facts that might be interesting
to your group. The Cooper-Grandy legislation provides low-income
assistance to individuals and families up to 200 percent of the pov-
erty level.

The President's proposal, at this point, such as it is, extends up
to only 150 percent of poverty.

Second, the ability of individuals to deduct 100 percent of their
premiums on the pooling arrangements will make coverage more
affordable because that part not subsidized by the government
would be deductible on your tax return.

Another point that I think is worth making is that the low-in-
come assistance program in the bill that I am cosponsoring will
cover 61 percent of the currently uninsured. And those are the peo-
ple that are in greatest need. Of the total uninsured population, 27

217

percent fall between 200 percent of poverty and $50,000 in annual
income.

So you would have to presume that those individuals, if they
were not buying insurance, were probably doing so partially be-
cause of their own choice.

The remaining 12 percent of the uninsured make over $50,000.
So the same thing would apply there.

Now, as you know, in both plans, there are insurance reforms
which are common to almost every piece of health legislation. I
would say that, at least in our bill, we are extending the same
rights to coverage as the President has alleged but has not yet
specified. In other words, regardless of health status, regardless of
age, regardless of geographic location, regardless of sex, in other
words, it is guaranteed issue.

I guess I would ask, again, knowing that, why is it necessarily
true that individuals who would not necessarily have their em-
ployer pay 80 percent, or 50 percent, or something determined by
the Federal Government, would be unable to acquire insurance?

Ms. PoHTKi^ Well, speaking from the perspective of an advocate
for women, we find that women are generally not well off in terms
of the employment field. Women still are in low-paying jobs, they
still are categorized into three occupational segments of the work
force which — which will guarantee that they will continue to be low
paying. They still are in the contingent work force either as part-
time workers or temporary workers so that they are not able to pay
for their own health care coverage.

Mr. GriANDY. Exactly the point. Exactly the point. If they can't
pay, the government will subsidize. The differences between the
Clinton plan and the bill that I am advocating is that we will sub-
sidize more of those individuals up to a higher level. So the — par-
ticularly the uninsured woman who may or may not be in the
workplace. As I read the details that we have that are constantly
changing from the Clinton plan and the ones that are at least writ-
ten into statute or into legislation, that I support, that gives that
woman a greater access to health care.

Now I want to stress access and not mandatory coverage and
that is a philosophical difference between the President's plan and
ours. She would be empowered to a greater degree under this bill
if she were low-income whether she were employed or not. If her
employer paid a portion of the health care and she were still below
the poverty level to the tune of 200 percent, the subsidized pre-
mium difference would aid her to acquire a plan. If she lost her job
and had no coverage from the employer and was still below that
poverty level, that voucher, that subsidy would increase.

So to some degree, the affordability and portability that we all
talk about is specified in greater detail, which is why I find it, at
best, inaccurate and, at most, dishonest to say that individuals un-
able to afford coverage would continue to be uninsured. Now, based
on what I have told you, do you still believe that?

Ms. PORTKH. Well, again, you mentioned yourself that you would
cover 61 percent of the currently uninsured.

Mr. GUANDY. Yes. The ones that have no ability to pay. The ques-
tion would be why would we cover people who are uninsured who

218

are very wealthy and could buy insurance without a premium sub-
sidy? That is the point.

Ms. Porter. And then the other 40 percent?

Mr. Grandy. The other 40 percent are from 500 percent of pov-
erty up to above $50,000 in income, according to the models we
use. You can contest those models, but that is something that usu-
ally we discuss when we have econometric bar graphs and charts
before us. My point is this, you put a letter out to every Member
of Congress, you have made assertions, and in your testimony you
have not, at least, specified in detail why you think this particular
comment is justified. I cannot find anything in your argument that
supports this allegation, and I can find a lot in the materials that
I provided to refute it.

Ms. Porter. And I think maybe you hit upon something, too,
yourself, in terms of saying that there is a difference between ac-
cess and there is a difference between coverage and access. As far
as the theoretical access to health care, because we all have access
in theory in terms of that there are health services that are out
there and there is a possibility of access to them. But do we have
the means by which we have the services covered?

Mr. Grandy. The means, that is exactly what you and I are talk-
ing about. My context is we provide the means, you acquire the
coverage. That, I think, is an important component of all health
care reform, and, to my knowledge, one that we have already speci-
fied in detail how people who do not have the means can acquire
health care.

Ms. Porter. I guess the other concern would be the extent of
coverage in terms of — again, we would like to see the full gamut
of services and that includes the long-term care that I have empha-
sized today. And that does not seem to be within the Cooper plan.

Mr. Grandy. My time is expired.

Chairman Stark. Mrs. Johnson, would you pick up the cudgel.

Mrs. Johnson. Thank you, Mr. Chairman.

I would like to comment that most groups that we worked with
are not willing to sign on to any plan vet. And so I really regret
that the Older Women's League signed that letter. I don't think
that there is a clear enough understanding yet of some of the is-
sues for you to have done so and I hope to bring out one of those
issues in 1 minute.

Let me just make some very brief comments before I go to my
question. First of all, Mrs. McSteen, I appreciate the part of your
testimony that pointed to some of your equity concerns for seniors
under this system and I think that is very important.

And I would like to allude back to my colleague from Wisconsin's
comment about the treatment of retirees. I think we all have to ask
ourselves whether or not government should pick up the 80 percent
cost of all retirees' premiums when, for low-income people, most of
whom are women, we are only going to subsidize according to in-
come. That kind of equity issue can't be washed over at this time.
And I think we all are going to have to address it.

In terms of your testimony, Ms. Porter, I wanted to thank you
for that portion which hasn't been brought out yet, where you spe-
cifically put OWL on record in support of family planning, preg-
nancy-related service, including abortion services and counseling.

219

And I appreciate that. You didn't have to do that. Most of your
members aren't interested in those services. But I commend you for
that.

I would also ask you to provide me in writing some response to
the CBO analysis of the single-payer system and how you, as a
supporter of single-payer, think we are going to deal with the chart
on page 9 of that report that shows that single-payer will increase
costs more than it will reduce costs.

And I will be glad to show you those pages specifically. But I
think you need to explain to folks like me why you are willing to
go to single-payer when it will force us into volume controls that
haven't been specified and what you think those volume controls
will be.

[The following was subsequently received:!

CBO estimates that enactment of H.R. 1200 would raise national health expendi-
tures at first but would reduce spending about 6 percent in 2003. The administra-
tive savings from switching to a single payer system would offset some of the cost
of the additional services demanded by consumers. Over the long run, the cap on
the growth of the national health budget would hold the rate of growth of spending
on covered services below the baseline.

In addition to reducing national health expenditures in the long run, a single
payer system as delineated in H.R. 1200, would shift a large amount of health
spending from the private to the public sector. The new program would assume vir-
tually all spending now covered by private health insurance.

Mrs. Johnson. And then, last, I want to turn to a comment made
in your testimony, Ms. Brown — but implied in all of your testi-
mony — and that is the importance of systemwide cost control.

And I believe that is very important because if we don't control
the costs, we will accomplish nothing. Because, in the end, access
will continue to erode.

Now, in that regard, have your groups analyzed the impact of
controlling costs through the global budget premium fixing scheme
in the President's proposal?

And I would remind you that in that 239-page detail that we re-
ceived, it actually does say that health alliances may provide, to
the accountable health plans, their budget before the accountable
health plans suggest a premium.

So it is very clear that the global budget is going to include Medi-
care; it is going to include a lot. Those are going to be deducted
from the budget before it goes out to the States. So the States will
know pretty much what these premiums are going to have to pro-
vide. And we are going to be able to divide by population into this
budget, get a pretty clear idea what the premium will be.

The premium also won't just provide administrative costs for the
insurer and health care reimbursement rates. Those premiums will
now have to pay also for medical education. That has never been
paid through the premium section. But 2 percent is going to be
piled in there.

They are going to have to pay for the HIPCs administrative cost.
That is another 2 percent. There are about five specific things that
the premium is going to pay for they have never had to pay for.

So looking at tnat mechanism for premium setting and what it
will end up covering and what it won't and looking at the more
flexible mechanism that some of us support that will provide a
similar kind of backstop — and that is limiting deductibility — and

220

let's, for conversation sake, assume we are going to limit deductibil-
ity to the value of the mean premium. Has your organization ana-
lyzed the impact of the global budget premium setting mechanism
in the President's bill versus the deductibility approach which fo-
cuses competition in the center, forces those providing health care
to compete to be efficient but doesn't set premium dollars behind
it? Because this is true in the President's budget, every fee-for-
service system in the President's proposal is going to operate by a
fixed price system.

So have you looked at the relative impact of using deductibility
as the pressure for systemwide control, a limit on deductibility, ver-
sus global budgets and premiums, and set premiums with price
controls?

Ms. Brown. I don't know that we have looked at that yet. We
will get back to you on that.

[The following was subsequently received:!

With regard to the elTectiveness of capping the health insurance exclusion, it
should be kept in mind that such an approach does not directly limit health expend-
itures. It merely provides a disincentive to purchase more costly insurance by treat-
ing the amount of insurance above some threshold as taxable income. In short, indi-
viduals would pay higher income taxes under the "tax cap" approach. Estimates
suggest, however, that a 10 percent increase in the price of health insurance reduces
the consumption by only 2 percent. The disincentive would appear to be relatively
weak. While a "tax cap" may have merit, it is not likely by itself to reduce costs.

Premium limits or ratesetting, on the other hand, would limit health expenditures
directly. AARP generally supports the President's proposal to limit the growth in
private insurance premiums. If done right, premium limits could protect individuals
and families from high costs in a way that is easily understood and broadly efTec-
tive. Premium limits in the private sector — with effective backup mechanisms to
provide real enforceability — would finally begin to address cost growth where here-
tofore there has been no constraint on spending.

Ms. Brown. We think that the premiums need to be set, and we
agree with the global budgets. We also believe that these issues
will have to be revisited as we work our way through the process.

And we are putting the onus on Congress to create — you know,
the process that we go through in this country is rather laborious
as we create new legislation, but we know that it works.

And so what we are looking to you to do is to create — and we are
willing to work with you to try everything we can to help this hap-
pen — to create legislation which takes care of the women who can-
not get health care; which provides wonderful things for children;
which gives to families that are facing disability, whether they are
young or they are old, these families are going broke; we are look-
ing to you to lead us through the process to develop a health care
reform system. We assume it will not be perfect. We assume we
will have to revisit portions of it, but we are looking to you to do
that for us. And we pledge to help you do that.

Ms. McStkkn. I think your question goes even further and raises
the question that we are concerned about. And that is the effect of
caps and global budgets on the quality of care.

And in this country we should not be thinking about whether we
can afford to provide quality care; but how can we do it. And that
is where the cost analysis would play a strong role.

Mrs. Johnson. Ms. Porter.

Ms. Porter. No. That is all right.

221

Mrs. Johnson. Well, I do hope — actually, you hit the nail on the
head, Ms. McSteen. If you have set caps and premiums — and I
would ask you, Ms. Brown, to be rigorous in your analysis of this,
and I hope you will all get back to me on this. I would be glad to
sit down and talk to your groups about it, because if you limit de-
ductibility to a mean premium, then you allow a lot more variation
in approaches and particularly addressing quality issues.

And I would urge you — particularly all of you who have had ex-
perience with Medicare, you know perfectly well that when Medi-
care refuses to cover a drug, it affects quality. And we have done
that in the past. But also by price fixing, very specifically, reim-
bursements for every activity, we have denied seniors access to
care in my part of the country and are doing it increasingly.

I noticed that in one of your testimonies — actually in your testi-
mony, Ms. Brown, you do say, "Medicare-only cuts increase the
chance that physicians and other providers will not treat them."
And we are seeing that in Medicare, that cuts reduce access.

And fixed premiums — especially when the premiums are a func-
tion of a global budget that is already overloaded and is being
forced down at a rate that is unrelated to costs — pose a very seri-
ous threat to America's seniors.

And I would hope that you would work with me on looking at
which is the best backstop which will preserve quality and flexibil-
ity out there.

If the mean — there is — you can't go too far in diminishing serv-
ice. So the competition will pull that mean down if the people can't
tolerate it. Whereas in the global budget, you will pull the mean
down, whether it is realistic or not.

And we saw that in Medicaid. We are seeing that in Medicare
and the VA system. My VA hospital in my district is such that if
you need a hearing aid in central Connecticut, you go to New York
City for the hearing test, even if you are 95.

So don't think that global budgets don't, over time, erode access
and quality. Without question they do, and we have the models to
prove it. So we can't be too sanguine about somebody defining that
global budget and then setting premiums.

And I hope you work with me on this larger issue. And that is
one of the key things that lies behind this letter. And that is why
I believe it was very unwise for any organizations to sign on that
and not be able to answer to me why global budgets are better
than tax deductibility.

Chairman Stark. Is there further inquiry?

Mr. Thomas. Mr. Chairman.

Chairman Stark. Mr. Thomas.

Mr. Thomas. Just a brief question.

Ms. Porter, in your testimony you, once again, are fairly declara-
tory in terms of what is in the plan and stating what is in the plan,
when most of us are still struggling with that 239-page general
outline. We have seen statements that indicate that even what is
in the 239-page outline is going to change, including testimony
from some of the experts who helped put the plan together.

On page 1, you indicate that you are pleased with a number of
items that are going to be offered. What I am trying to do is just
get a feel for tradeons.

222

Any package that passes — and I believe a package will pass — is
going to be a very difficult thing to put together politically.

One of the areas the administration has decided to include in the
package is family and reproductive services. I don't know exactly
what that means and it can go all the way from $1.95 counseHng
to complete services for voluntary abortions. The political scale
from one to the other is enormous.

So the question I would ask you is, if everything that you know
about the plan — which seems to be more than we know about the
plan — if everything you know about the plan remains the same but
the family reproductive services portion does not include abortion
coverage, if that was dropped from the plan, would that change
your position of supporting or opposing the plan?

Ms. PoRTKR. Well, I guess I wear two hats in a sense, because
I am here as representing the Older Women's League; but, as I also
indicated, and it is indicated in my testimony, that we have con-
vened a coalition of women's organizations called the Campaign for
Women's Health. This service is very important to the campaign.
So as

Mr. Thomas. I have no question that it is important. But in the
political problem of trying to pass a comprehensive program that
will reform a $1 trillion segment of the economy, significantly re-
structure a number of professions and businesses, change, in part,
the relationship between the patient and the doctor, I asked you
a hard question. But I would like to have an answer.

If the abortion portion is not in it, would that change your posi-
tion of supporting the plan to opposing?

Ms. Porter. Again, with my dual nature, I would say probably
as representing the Older Women's League, that we would not go
down in flames over whether or not it was in there.

But as far as representing the Campaign for Women's Health, I
think that would be another matter.

Mr. Thomas. I am trying to test the waters.

You are saying that there are some groups who would be willing
to scrap the entire project if it didn't include reproductive services,
including the costs of abortion in that basic benefits package?

Ms. Poiri'Kit. Yes, there were some groups that feel strongly
enough.

Mr. Thomas. OK. And I am trying to get it from a point of view
of a political problem. I am not trying to indicate a plus or minus
for you, since we just had a vote yesterday on the floor, you know,
surrounding that issue. It is going to make it that much more dif-
ficult to carry whatever we carry across the line.

Ms. Brown, Ms. McSteen, do either of you have a feeling about
it? If the costs of abortion were dropped from the plan, would that
change the AARP's position in support or opposition for the plan?

Ms. Brown. Practically not.

Mr. Thomas. Probably not.

Ms. McStkkn. No.

Mr. Thomas. You are looking at it, in relative terms, in terms
of the overall program?

Ms. Brown. Yes. You have to understand, though, that AARP
has a process that we would go through, and I may be wrong.

223

Mr. Thomas. I understand that. But also the cHentele of both of
you is significantly different than part of the coalition that Ms. Por-
ter represents. Some people are dealing with this in a theoretical
sense; others are dealing with it in a real world sense. And I un-
derstand the difference.

Thank you.

Chairman Stark. Mrs. Johnson, I have been informed that our
colleague would like to yield to you.

Mrs. Johnson is recognized for a brief clarifying question.

Mrs. Johnson. Thank you.

I did want to ask, if, in polling your constituencies, you have
been careful to define what long-term care benefit the President is
actually offering and to make clear that this is not a nursing home
benefit, that this is only a slightly enriched home care benefit that
is slightly enriched over the current Medicare benefit?

I mean even a lot of seniors in my district who won't be able to
qualify as severely disabled will not get an enriched home care ben-
efit under this plan.

And I wonder — I want to be sure that in your polling and sup-
port that your people are really understanding what is being of-
fered and what is not being offered in the President's plan.

Have you been specific in dealing with your folks about this?

Ms. Brown. From the AARP, I believe we have. We have held
forums around the country. And at those forums, we have had peo-
ple available to answer questions on those issues.

Mrs. Johnson. Have they made a point, though, to try and edu-
cate?

Ms. Brown. Yes. You know, we all face the same issue. And the
same issue is: How do we get enough information that is good out
to our constituents so that they truly understand?

And that is your problem, and we all face the same problem:
How can we educate the public as to what it is that is being pro-
posed so that they can knowledgeably get answers?

I believe we have done a good job so far; but, of course, we don't
have a whole plan, and it is a difficult task.

Ms. McSteen. It is really very difficult to get people to under-
stand, as you pointed out. But we continue to try.

But until we have some, what I consider real, examples, I think
we will not get our message across. We will just have to see, with
the various pieces of legislation, how we can best present the is-
sues; we are awaiting the administration's plan before we decide.

Ms. Porter. OK. We are a smaller organization than either of
the two on either side of me, so we do have, probably, the oppor-
tunity to reach all of our members, because we are a smaller orga-
nization.

And we have made it clear in terms of what the long-term care
provisions are. And our charge from our members is that we try
to get as much of long-term care services as we can. And this is
what we hope to do with the hearings, is to see what we can do
better on long-term care than is already currently in the Presi-
dent's plan.

Mrs. Johnson. Thank you.

Thank you, Mr. Chairman.

Chairman Stark. Mr. Levin.

224

Mr. Levin. Thank you, Mr. Chairman.

While we are discussing prioritization, let me just ask you quick-
ly — you may not be in a position to respond at this moment and,
tactically, it might not be wise — but let me probe in terms of your
membership.

Do you have any feel as to whether, in terms of priorities they
would put prescription drug or home health care provisions above
one another?

Ms. McSteen. We do not have at this time. But what we are an-
ticipating having is some precise figures, that is, what the deduct-
ible will be for the prescription drug benefit. And if there will be
a premium for long-term care.

And then I think we have an opportunity to say, if you can have
one or the other, this is what you would get and what you would
pay for in both respects, and then get the answer.

Mr. Levin. So right now, in terms of your organization, there is
a need for more detail about each of the two?

Ms. McSteen. You are correct.

Mr. Levin. Fair enough.

Either of you want to respond?

Ms. Porter. It is — it is a hard situation to make a choice, in
terms of which one would be ranked above the other. I don't know.
I couldn't say.

I think they are both so equally important that I couldn't rank
them.

Ms. Brown. As far as AARP is concerned, if there is no long-
term care portion to the bill, we are unable to support anything
that would do that.

We also feel that it is equally important to have a drug piece.
And our research, as recently as 3 weeks ago, of all ages of Ameri-
cans, said that, without those two pieces, the support for the bill
goes down. And it is a dramatic change.

We can provide you with that information. We are always doing
polHng.

[The following was subsequently received:]

The inclusion of long-term care and prescription drugs in health care reform is
critical to older Americans' support for reform.

Prescription drugs. The combined effects of high pharmaceutical prices and the
lack of Medicare coverage for prescription drugs have significantly limited access to
needed drug therapies for older Americans. A recent national survey sponsored by
AARP showed that:

• older Americans use significantly more prescription drugs than other age
groups to maintain their health;

• prescription drug insurance coverage declines rapidly as age increases; and

• out-of-pocket costs for prescription drugs are significantly higher for older
Americans than for their younger counterparts.

As a result, many older Americans cannot afford the prescription drugs they need
and are denied access to essential, often life-saving, medications — compromising
their health status and making them more likely to receive unnecessary and more
expensive acute care. Many more compromise their prescription instructions, there-
by reducing their efficacy and increasing the likelihood of higher acute care costs.

Long-term care. A survey conducted for AARP this past April found that 90 per-
cent of the respondents felt that including long-term care in a health reform pro-
posal was important. Support for health care reform increased from 46 to 82 percent
when long-term care was included. More recently, in a poll conducted for AARP in
October 1993, 86 percent of respondents in California stated that they would be less
in favor of the President's health care proposal if it included no coverage for long-
term care.

225

According to a survey conducted in the fall of 1991 by DYG, Inc., three-fourths
of Americans (18 and older) were "very concerned" about paying for the cost of long-
term care. The concern, which is felt sharply by both men ana women, extends to
all income and age groups. In fact, concern about long-term care was greatest
among persons age 50 to 64 — those most likely to be caring for older parents and
worrying about their own futures.

In a Harris survey conducted during December 1992 and January 1993, 91 per-
cent of the respondents said they could not afford long-term care when they were
told it would cost $15,000 to $60,000 a year, or $40 to $160 a day. With regard to
a Federal program providing long-term care in the home for the chronically ill or
disabled, over 80 percent of respondents favored such a program not only for people
65 years of age and older, but for adults and children as well.

Mr. Levin. When you say long-term care, the President's pro-
posal, as you have seen it, you would define that as long-term care?

Ms. Bf^own. Well, it is obviously not a dream — our dream defini-
tion of it. But it is a beginning, sir. And we recognize there are two
major issues for older people. One is they need and want to stay
in their homes as long as they can.

And, second of all, they dread going into a nursing home and
going broke and leaving the spouses not in the nursing home going
broke.

Although it is not perfect, we would like to be sure that it is
shored up so that there is adequate care health care. But we are
willing to make a start there.

Mr. Lkvin. As long as there is an important beginning, is that
a fair assessment of your position?

All right.

Thank you very much, Mr. Chairman.

Chairman STAitK. Thank you. I had one final question. I am a
little puzzled about the alliances. The more I look at it, the more
I wonder what they do and, if we didn't have them, whether we
couldn't still go ahead and do all the things that everybody wants
to do, either directly or through other existing agencies.

And so I just ask each of you, how you feel about the alliance,
the State-operated type. I will give you three choices, just to make
it easier: Do you feel they are absolutely essential; do you dislike
them; or are you indifferent?

Ms. Brown.

Ms. Brown. I guess I am unwilling to answer that because I am
not sure that I am comfortable with what the offshoot would be if
you didn't have them.

So I am unwilling to answer that.

Chairman Stark. Let me ask you this: Do you know, would it
make any difference, the way we run Medicare or the way we run
private insurance or anything else?

I am not against them. But I don't know

Ms. Porter.

Ms. BiwwN. They appear to be a mechanism for a start.

Ms. PoRTKJt. Well, again, to reiterate, our preference is for the
single-payer approach of, you know

Chairman Stark. Mine, too.

Ms. PoRTKR I continuing]. Of health care reform. But given the
President's plan, we are sort of like you, asking how is it going to
work and trying to understand it. But at least with the President's
plan, it appears to be the mechanism by which we will get health
reform. It is a means of getting health reform. And I think that is

226

something to keep in mind, too, not have the small steps, the incre-
mental steps, but true comprehensive health reform.

So it does seem to be the structure by which we would have it.

But, again, our preference is for a single-payer approach.

Chairman Stark. I just say to you that the Federal Government
could do whatever the alliance is going to do and say everybody's
mad.

There are a lot of organizations — the Congress, the President,
HCFA— that could do this.

Ms. McSteen.

Ms. McStkkn. Well, the health alliances raises questions that we
are all waiting for. How much power will they have; how much
money will they have; how fair will they be to all of their member-
ship; what the competition will be. Those are questions we are still
asking.

Chairman Stark. What I would say in response is that Medicare
goes on with its warts and blemishes, as Ms. McSteen has pointed
out; but it has gone on all these years, without alliances, quite
well.

And I just say how would you improve Medicare by creating alli-
ances?

I don't know that you would. I am not suggesting the rest of the
President's plan couldn't be put into action. Is this some objection
to alliances and the power they might get on the part of insurance
companies?

There was some concern expressed about this in the Senate yes-
terday. I would postulate the President's plan could proceed
unimpeded. Just don't include the alliances.

Thank you very much. We appreciate your participation, and we
hope that it will be ongoing. I would say on behalf of all the mem-
bers of the committee, we would like to be kept abreast of what
your membership tells you through your polling and how your var-
ious organizations react to the changes of the plans that will come
forward.

Don't wait for the next hearing to let us know, because that will
help us in our deliberation.

Thank you very much.

The next panel, representing the consumers groups, will consist
of Gail Shearer, manager of policy analysis. Consumers Union, and
no stranger to the subcommittee; Stan Dorn, managing attorney.
National Health Law Program, Inc.; Rebecca Cain, president.
League of Women Voters of the United States; and Richard Kirsch,
executive director. Citizen Action, New York, representing Citizen
Action in action.

Welcome to the panel.

We will ask, Gail, if you would like to lead off.

STATEMENT OF GAIL SHEARER, MANAGER, POLICY ANALYSIS,
CONSUMERS UNION

Ms. Shearkr. Thank you, Chairman Stark.

Consumers Union appreciates the opportunity to present our
views on the Clinton administration's proposal for health care re-
form. Consumers Union's efforts in support of health care reform,

227

like those of Chairman Stark and many committee members, goes
back many years.

Today I brought along with me a copy of the February 1939 issue
of Consumer Reports, and I would like to share with you something
that we said. This is over 50 years

Chairman Stakk. I am probably the only person here that sub-
scribed then.

Ms. Shearer. Our 1939 article concluded, "It has become obvious
that the people of the country intend to see to it that the whole
population shall benefit from the discoveries of modem medical
science. The only question before the country now is 'how soon?'"
It is time for us to finally end the Nation's health care nightmare
and answer the question "now." Consumers cannot and should not
have to wait longer for a solution to the health care crisis.

Consumers Union is eager to help you analyze the element of re-
form from the consumer perspective. As your subcommittee helps
lead the Congress' consideration of the reform plan, we urge you
to also stay in touch with the average American consumer, the peo-
ple whose lives are either improved by a health care system that
works well or whose lives are destroyed by a health care system
that fails them.

Only by keeping in touch with these consumers will the Congress
be able to stand up to the many special interests that will seek to
make their case in order to develop a health care program that
meets consumers' expectations and need for health care reform.

To meet the needs for consumers, any health care reform plan
must offer: Universal quality health care, with comprehensive ben-
efits; cost containment; fair share financing; public accountability;
and consumer choice of health care providers.

While we continue to believe that a single-payer health care sys-
tem as incorporated in H.R. 1200, also known as the McDermott
bill, could best meet the health care needs of American consumers,
we are pleased that the Clinton administration has embraced many
of these principles. We believe that the Clinton proposal would
move the Nation's consumers closer to health care security. Still,
it leaves room for significant improvements.

The strongest part of the health care plan is its commitment to
universal health care protection. The Nation can no longer rely on
the free market and wishful thinking when it comes to health care
security. Health care is not a commodity like detergent or VCRs
that can be bought and sold in the marketplace. While the free
market works well for things we buy at Kmart, it utterly fails
when it comes to surgery, checkups, and other health care services.

The proposal, if enacted, would offer relief to the millions of
Americans who are now denied protection due to their financial
status or to preexisting conditions. I plan to briefiy summarize
Consumers Union's five-five plan, five ways to improve the Clinton
health care proposal and five elements that must be protected in
the face of special interest opposition.

First, the Clinton health care proposal makes a good start at pro-
viding consumers with health care security. The following five
changes would make it even better.

First, the plan should be changed to protect low- and middle-in-
come consumers from paying a disproportionately high share of

228

health care costs. And the best way to do this is to cap the employ-
ee's contribution at 2 percent of income.

Second, it must encourage the State single-payer option. The
Clinton proposal allows States to establish a single-payer system,
but it includes a provision that seems to discourage them from
doing so. We think that the State single-payer option should not
merely be tolerated but should be encouraged, because the single-
payer option has the best chance of meeting consumers' needs. And
in States that do not elect a single-payer option, it is essential that
the health plans be made accountable to consumers, not insurance
companies' shareholders.

Third, make freedom of choice provider a real option for people
of all income levels by requiring all health alliances to offer a fee-
for-service plan that costs little more than the average cost plan.
This change is needed because freedom of choice — freedom to
choose health care providers is one of the most highly valued fea-
tures that consumers seek in health care reform.

Fourth, include the blueprint for phasing in nursing home bene-
fits and expanded community care benefits. We recognize, as
should Congress, that these benefits will require a substantial new
funding base; and we recommend that you consider increasing
taxes to pay for the expanded long-term care benefits.

Fifth, give the National Health Board the authority to regulate
prescription drug prices that apply to all Americans, not just the
Medicare and Medicaid eligible. When it comes to the regulation of
prescription drug prices, we believe the administration plan should
be strengthened, to include the authority to regulate drug prices.
If drug prices were a river, they would already be well above flood
stage. It is meaningless to talk about voluntary price controls, since
prices are already out of line.

This month's issue of Consumer Reports, which we will provide
to every Member of Congress, provides very strong evidence for the
need for expanded regulation of prescription drug prices.

Mr. Thomas. Excuse me. How much is it?

Ms. Shearer. Pardon me?

Mr. Thomas. How much does it cost?

Ms. Shearer. $2.95.

Mr. Thomas. OK. That will qualify.

Ms. Shearer. Under the limits. OK.

Mr. Thomas. Thank you.

Ms. Shearer. Every element of the Clinton health care profes-
sion will be subject to attack from a variety of special interests.

We urge you to carefully consider the interests of the average
American consumer in preserving these important elements of
health care reform:

First, universality must be a reality by 1997. It should not be de-
pendent on voluntary participation or cost savings.

Second, both public and private spending must be subject to
stringent cost containment, both to achieve savings and to avoid
cost shifting.

Third, the number of employees needed to form a corporate alli-
ance should not be expanded beyond 5,000.

Fourth, the most severely injured victims of medical malpractice
must be protected.

229

And, fifth, the benefits package must remain comprehensive.

This is what consumers want and need, and it is crucial to avoid
a burgeoning supplemental market and a multitiered health care
system.

Thank you.

[The prepared statement and attachment follow:]

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TESTIMONY OF GAIL SHEARER
MANAGER, POLICY ANALYSIS, CONSUMERS UNION

Consumers Union' appreciates the opportunity to present our
views on the Clinton Administration's proposal for health care
reform. Consumers Union.' s efforts in support of health care reform
-- like those of Chairman Stark and many Committee members-- go
back many years. In 1939, Consumer Reports noted that forty
million Americans received inadequate medical care and called for
enactment of the Wagner National Health Bill, which would have been
a "cornerstone for a national health program."^ In 1946, Consumer
Reports supported the Wagner - Murray -Dingell Bill, which would have
established federal compulsory health insurance.' In 1975,
Consumer Reports published a comprehensive comparison of five
proposals for national health insurance and established five goals
that a national health insurance plan must meet to serve the
consumer interest. Consumer Reports published a two-part series,
"The Crisis in Health Insurance" in 1990, and a three-part series
in 1993 that reviewed wasted medical care dollars, consumer
satisfaction with Health Maintenance Organizations, and solutions
to the health care crisis.

In 1939 -- over fifty years ago -- our article concluded: "It
has become obvious that the people of the country intend to see to
it that the whole population shall benefit from the discoveries of
modern medical science. The only question before the country now
is 'how soon?'" It is time for us to finally end the nation's
health care nightmare and answer this question "now!" Consumers
can not and should not have to wait longer for a solution to the
health care crisis.

Consumers Union is eager to help you to analyze elements of
reform from the consumer perspective. As your Subcommittee helps
lead the Congress's consideration of the reform plan, we urge you
to also keep in touch with average American consumers - - the people
whose lives are either improved by a health care system that works
well, or whose lives are destroyed by a health care system that
fails them. In developing its health reform proposal, the Clinton
Administration was successful in reaching out to the consumers who
are on the receiving --or non- receiving -- end of health care in
America.

Only by keeping in touch with these consumers will the
Congress be able to stand up to the many special interests that
will seek to make their case, in order to develop a health care
program that meets consumers' expectations and needs for health
care reform.

CONSUMER FRIKCIPLES FOR HEALTH CARE REFORM

To meet the needs of consumers, any health care reform plan
must offer:

'Consumers Union is a nonprofit membership organization
chartered in 1936 under the laws of the State of New York to
provide consumers with information, education and counsel about
goods, services, health, and personal finance; and to initiate and
cooperate with individual and group efforts to maintain and enhance
the quality of life for consumers. Consumers Union's income is
solely derived from the sale of Consumer Reports . its other
publications and from noncommercial contributions, grants and fees.
In addition to reports on Consumers Union's own product testing.
Consumer Reports with approximately 5 million paid circulation,
regularly, carries articles on health, product safety, marketplace
economics and legislative, judicial and regulatory actions which
affect consumer welfare. Consumers Union's publications carry no
advertising and receive no commercial support.

^"The Wagner Bill and mr. Gannett," Consumer Reports . April
1939, p. 20 and "By Popular Demand," Consumer Reports . February
1939, p. 32.

'"Bureaucracy in Medicine?," Consumer Reports. April 1946, pp.

231

universal, quality health care (with comprehensive benefits)
for all U.S. residents -- regardless of age, income, employment
status or health status) ;

cost containment with a national health care budget and
control over wasteful paperwork and procedures;

fair- share financing with savings from cost containment as a
central funding source and additional funding obtained on a fair
and equitable basis;

public accotintability with consumers well represented on all
boards overseeing health care; and

consumer choice giving consumers the freedom to choose where
they will go for health care and who will provide it.

While .we continue to believe that a single-payer health care
system as embodied in H.R. 1200 could best meet the health care
needs of American consumers, we are pleased that the Clinton
Administration has embraced many of these principles. We believe
that the Clinton proposal would move the nation's consumers closer
to health care security. Still, it leaves room for significant
improvements .

THE CLINTON HEALTH CARE REFORM PLAN
A CONSUMER PERSPECTIVE

We have evaluated the Administration's draft health care
reform plan (dated September 7, 1993) against the five consumer
principles listed above. Attached to this testimony is our
analysis (including a summary) . The strongest part of the health
plan is its commitment to tiniversal health care protection. The
nation can no longer rely on the "free market" and wishful thinking
when it comes to health care security. The proposal -- if enacted
-- would offer relief to the millions of Americans who are now
denied protection due to their financial status or to pre-existing
conditions. The plan offers security to everybody against
unforeseen events such as development of serious illness or loss of
jobs.

The Clinton health care proposal incorporates elements that we
have long supported, including (1) a standard, comprehensive
benefit package for all Americans; (2) control over health care
premiums set by the National Health Board, rather than the free
market; (3) a prohibition of balance billing, and (4) rejection of
caps on damages for victims of medical malpractice. The attached
analysis explores in more detail both the strengths and the
weaknesses of the Clinton proposal.

In the remainder of my written testimony, I will sximmarize our
comments by presenting five areas where we believe the plan needs
to be strengthened, as well as five components that must be
defended against attack and erosion from special interests.

FIVE WAYS TO STRENGTHEN THE CLINTON HEALTH CARE PROPOSAL

The Clinton health care proposal makes a good start at
providing consumers with health care security. The following five
changes would make it even better at meeting consumers' needs and
expectations for health care reform.

1. Protect low- and middle- income consumers from paying a
disproportionately high share of health care costs.

While all employers are assured of not having to pay more than
7.9 percent of their payroll cost for health insurance premiums,
individuals and families are offered no such protection by the
draft proposal. We believe that the employee's share of the
premium (which is proposed to be 20 percent of the weighted average

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plus any amount of premiim exceeding the average) should be capped
at about 2 percent of income for plans that cost less than (or
equal to) the average. Without such a cap, low wage workers who
are not eligible for a sxibsidy could face a very steep burden,
especially if they want the freedom to choose their own doctor. In
addition to limiting premiums as a percent of income, we recommend
that you consider reducing the cost -sharing requirements in the low
cost -sharing plan to ensure that deductibles and coinsurance
requirements do not serve as a barrier to health care for anybody
in this country.

2. Encourage the state single payer option.

The Clinton Administration health care proposal allows states
to establish a single-payer health care system, but includes a
provision that seems to discourage states from doing so. It would
require that states appropriate revenue from "sources other than
those established by this Act" to pay for the program. It is not
clear to us what this means, but its direction is wrong.

Does it preclude a state from imposing a payroll tax, one of
the provisions of most single-payer legislation? In light of the
ability of a single-payer system to achieve the principles of
universality, cost containment, accountability to consumers,
freedom to choose providers, and fair financing, the federal
government should affirmatively provide the necessary funding to
states to encourage them to adopt a single payer health care
system.

3. Make freedom- of -choice of provider a real option for
people of all Income levels by requiring all health
alliances to offer a fee -for -service plan that costs
little more than the average cost plan.

Freedom to choose their health care provider is one of the
most highly valued features that consumers seek in their health
care system. Consumers want to be able to continue long-standing
relationships with their family doctors, specialists,
pediatricians, and other health care providers. Often, one family
will have an array of doctors, making it impossible to follow them
all to one HMO. Consumers want to be assured that if serious
illness strikes, they will have access to the highest -quality
specialist and specialized treatment centers.

All consumers -- even those that can afford the fee-for-
service option -- face considerable uncertainty about whether their
current doctors will be available to them. We are concerned about
the possibility that freedom of choice of provider could be a
luxury only the rich can afford. We recommend that in negotiating
for a fee-for-service health plan, health alliances should be
required to make this option available to all, by limiting the
premium differentials (above the average cost plan) that can be
charged by fee-for-service plans.

4. Include the blueprint for phasing- In nursing home
benefits and exp£uided community care benefits.

The United States faces a growing long-term care crisis that
will only get more severe as the population ages. Consumers Union
has concluded that the private insurance market is incapable of
solving the nation's long-term care problem --it will never cover
people who can not afford the high premiums, nor will it protect
people whose pre-existing conditions make them uninsurable. The
draft health plan includes an important community based care
benefit. But the requirement that potential beneficiaries must be
unable to perform three "activities of daily living" limits the
benefit to a small portion of people in need of long-term care.
For example, a person incapable of moving around (e.g., from bed to
a chair) and unable to go to the bathroom by herself can not be
left home alone all day long, but may not qualify for the new

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community-based benefit.

Consiuners Union supports including in the health plan a
blueprint for future expansion of public long-term care benefits,
including both expanded community based care and nursing home care.
We recognize -- as should the Congress -- that these benefits will
require a substantial new funding base, and we recommend that you
consider increasing estate taxes (possibly by taxing capital gains
at death) , charging premiums for persons with incomes above a
certain level, and increasing income taxes, and/or payroll taxes.

5. Give the National Health Board the authority to regulate
prescription drug prices that apply to all Americans, not
just the Medicare- and Medicaid- eligible.

The Administration's draft plan has several provisions that
will help to keep prescription drug prices in check. The National
Health Board, for example, can make public declarations regarding
the reasonableness of launch prices for new drugs and can study and
report on the reasonableness of drug prices. In addition, rebates
of at least 15 percent of the average manufacturer price are
required for drugs issued through Medicare and Medicaid. We
believe the plan needs to go further. The United States is the
only industrialized country that makes no effort to regulate drug
prices, forcing U.S. consumers to pay higher prices to help pay for
research that benefits citizens of other countries, who pay much
lower prices. The Office of Technology Assessment recently
reported that during the 1980 's, pharmaceutical companies on
average earned about 15 to 3 percent more profit than was needed
to attract adequate investment capital. We strongly recommend that
the National Health Board's responsibilities include the authority
to regulate prescription drug prices.

FIVE PROVISIONS TO FIGHT TO KEEP

Every element of the Clinton health care provision will be
subject to attack from a variety of special interests. We have
identified five areas where we believe the consumer interest lies
in keeping the provisions that are in the draft plan. We urge you
to carefully consider the interests of the average American
consumer in preserving these important elements of health care
reform.

1. Universal health care must be a reality by 1997.

Extending universality to all Americans must NOT be dependent
on achieving cost savings and must not be phased- in with a vague
timetable. Universality must be a reality by 1997. The plan must
resist attempts to make the employer responsibility voluntary or
participation in health alliances voluntary. The level playing
field for all employers and the end to cream- skimming by health
insurers are critically needed elements in the plan.

2. Cost containment through limits on public «uid private
spending must be kept.

Global budgets and premium caps to curb cost growth in both
the public and private sector health spending are essential. The
plan appropriately includes curbs on health care spending, and this
backstop protection should not be sacrificed to give the failed
"free market" cost containment efforts yet another chance to drive
up health care costs. Also, Congress must guard against health
care provider pressure to abandon the ban on balance billing and
physician self -referral. These are two culprits that have
contributed to today's high costs. You also must resist all
efforts to grant antitrust exemptions (beyond the guidelines in
the draft plan) for doctors, hospitals, and pharmaceutical
con^Jemies .

234

3 . Keep most large employers In the system.

The draft plan would allow employers with more than 5000
workers to operate in a separate "corporate alliance" system,
presumably with a tax of one percent or so to help pay for research
that benefits everyone in the country. The "corporate alliance"
system should NOT be expanded by reducing the minimum 5000 worker
level , because to do so would undercut the goal of achieving a
universal system that treats all Americans the same and would
contribute to a multi-tier system. The tax on corporate alliances
should be preserved and set at a fair level: not only does it help
pay some of the costs and subsidies of the system, but it helps
decrease the incentive for large employers to opt-out of the
system, reducing the "tiering" of health care. It is crucial that
corporate alliances be required to offer the standard benefits
package and be subject to the same set of rules that apply to
health plans in regional alliances.

4. Protect the victims of medical malpractice.

It is vital that consumers most severely injured by doctor
negligence be fairly compensated; there should NOT be any caps on
malpractice awards for pain and suffering.

Contrary to the mythology that has evolved around the medical
malpractice problem, malpractice premiums account for a very small
portion of health care costs -- only about one percent. The
Congressional Budget Office recently concluded that changes in the
medical malpractice liability system would have a small impact on
national health expenditures, and they therefore declined to
"score" any savings. Goals of medical malpractice reform should
be to identify and discipline doctors guilty of repeated medical
malpractice, and to increase the ability of the system to fairly
compensate malpractice victims.

5. Keep the benefits package cos^rehensive.

One of the strengths of the Clinton Administration health care
reform package is the comprehensiveness of the benefits package,
including a range of benefits such as prescription drugs, some
long-term care benefits, and mental health benefits. The benefits
package must not be whittled away, or else the concept of universal
protection and security will be compromised, and a burgeoning
supplemental market will develop and help perpetuate a multi- tiered
health care system.

Thank you very much for the opportunity to testify today. We
look forward to working with your Subcommittee as this important
debate continues.

Publisher of Consumer Reports

THE CLINTON HEALTH CARE PLAN:
A CONSUMER PERSPECTIVE

Like any proposal that contemplates dramatic change of a major industry, the President's
health care proposal is not without serious flaws which we would like to modify. Consumers
Union's comments and recommendations revolve around the five principles for health care
reform that we embrace:

universal access to comprehensive benefits
cost containment
fair financing

accountability to consumers
freedom to choose providers.

Consumer Principle:
Universal Access to Comprehensive Benefits

The strongest element of the proposal is that it extends universal health care protection
to all Americans. It would end the tragic suffering faced by millions of people who are now
denied adequate care because they are excluded from the health insurance market due to financial
barriers or pre-existing conditions. The benefit package is comprehensive, and includes
building blocks for long-term care. The proposal would put an end to insidious insurance
company practices such as exclusions of pre-existing conditions, waiting periods, underwriting
of high risks, and pricing practices that charge higher premiums for higher risks. Each eligible
person would receive a health security card that would open the door to health benefits.

However, Consumers Union believes that the proposal perpetuates a multi-tiered health
care syston, with differentiation between populations such as the Medicare-eligible, the
Medicaid-eligible, early retirees, corporate health alliance participants, regional health alliance
participants, and military personnel. Different budget constraints apply to different segments
of the population. The proposal should be strengthened by establishing a goal (within a
timetable of five years) of working toward fiiU integration of the entire population into a uniform
system for everybody. Undocumented woilcers and their families should have full access to the
uniform health care system since the plan specifically requires premiums to be paid for these
workers. Instead of differentiation between groups, there should be benefit parity in all
segments (Medicare, Medicaid, regional alliances, etc.). We believe that health care reform
will serve consimiers better — and will have broader public appeal — if there is the
and the reality that everybody is in this together. Indeed, consumers want a

Washington Office
1666 Connecticut Avenue. Suite 310 • Washington. D.C. 20009-1039 • (202) 462-6262

236

system that provides unifonn benefits regardless of age, income, health status, or employment
status.

While the benefit package is comprehensive, there is one key area where expanded
benefits should be included: long-term care. Even with a better-functioning private market, the
private insurance market will not be able to solve the nation's long-term care problem. While
the plan makes a good start by expanding community health benefits, eventually the benefits
should be expanded to lower the activity of daily living (ADL) requirement for community based
care and to allow for public financing of long-term nursing home care.

One of our health reform goals is to sever the link brtween employment and health
care coverage. While the proposal does make coverage portable for most consumers, the
employer and family/individual premiums are based on employment status, not income. Unlike
an income-based fmance structure (which can be achieved through a proportional payroll tax),
the financing link to employment status (e.g., fiill-time, part-time, retiree, corporate alliance,
etc.) creates inequities (e.g., between part-time vs. full-time workers, early retirees vs. senior
workers). These inequities will make the plan unafTordable for many low-income consumers,
forcing them to cut comers for basic necessities such as food and shelter in order to pay for their
health care premium. The addition of an income cap would alleviate many of these problems
just as the payroll cap will alleviate much of the burden on small low-wage businesses. (See the
financing section below).

Regulations affecting the supplementary insurance market need improvement. First,
there is no justification to allow the continued sale of low-value hospital indenmity insurance and
dread disease insurance: these products should be banned outright. Consumer Reports has
repeatedly concluded that these products are an essentially worthless purchase. Second,
regulations and standardization should apply to the supplemental market for benefits, not only
the supplemental market for cost-sharing. The supplemental market should consist of a limited
number of (e.g., three to five) standard policies, and these poUcies should be subject to a loss
ratio of 80 to 90 percent. Employers could offer these packages (premiums would be subject to
taxation) or individuals could purchase these packages on their own with no underwriting or
pre-existing condttion exclusions. Benefits (packaged from a low to a high benefit package)
could include: full dental coverage, full mental health coverage, expanded home care protection,
full nursing home coverage, and unnecessary cosmetic surgery. Without these provisions, the
supplemental market is likely to be characterized by confusion (as poUcies vary considerably)
and low value products.

With regard to the comprehensive benefits package, it is important that the plan eliminate
ambiguity as to whether health plans will be allowed to offer benefits beyond the guaranteed
benefit package: health plans should be prohibited from including extra benefits in the basic
package. Insurance companies have a long history of adding bells and whistles to policies that
confiise consumers and enable them to charge imjustifiably higher premiums. If plans were
allowed to add on extra benefits, the standardization that creates administrative simplicity and
improves consumer comparison shopping would be compromised severely.

237

Whether the guaranteed benefit package is truly comprehensive depends in large part on
how health plans under tight budget constraints interpret the coverage; consumers need
protection against stingy interpretations that could result in denial of needed care (see the section
below on accountability to consumers.)

Summary of Recommendations:
Universal Access to Comprehensive Benefits

1 . The proposal should establish a five-year goal of full integration of all populations (e.g. ,
regional alliance enrollees, Medicare population, Medicaid population) into a uniform
system for all, with identical benefits and choices.

2. The benefit package should be expanded (with an appropriate phase-in schedule) to
include home care benefits with a less severe disability requirement and to include an
expanded public program that phases in the funding.

3. Low-value policies no longer needed, such as hospital indemnity policies and dread
disease policies, should be prohibited from being sold.

4. The supplemental insurance market for extra benefits (e.g., additional dental care,
additional mental health benefits) should be subject to standardization (e.g., three to five
standard policies) and should be subject to loss ratios of 80 to 90 percent.
Supplementary policies should be community rated, and no underwriting or pre-existing
condition exclusions should be allowed.

5 . The proposal should be clarified to explicitly prohibit health plans from adding benefits
to the comprehensive benefits package, unless the additional benefits are offered in a
separately priced standard supplemental policy.

Consumer Principle:
Cost Containment

Consumers Union is a strong supporter of global budgeting for health care expenses,
because we view global budgets as the only sure way to rein in exploding health care costs. We
welcome the fact that the Administration is making a very serious effort to curb the health cost
spiral through a national health care budget. We endorse several elements of the plan that will
curb spending: the national health care budget, constraining the growth of Medicare and
Medicaid, banning self-referrals, establishment (by each regional alliance) of fee schedules for
the fee-for-service component of health plans, and the prohibition of balance billing in excess

238

of fee schedules in the fee-for-service plan.

One of our concerns relates to the fact that the health care system will consist of many
different segments. The differentiation leads to the need to treat different segments with
different schedules and different sets of rules. We recognize that the plan builds in a .9%
differential - added allowed growth -- in the Medicare and Medicaid budgets. Growth in
Medicare has been substantially greater than private health care growth -- by a differential of
about 4 percent. We question whether the .9% differential will be adequate to correct the past
inequities that have led Medicaid, in particular, to be a second-rate, lower quality portion of the
nation's health care system. And we fear that if the .9 percent differential is too low, that
Medicare will follow in the footsteps of Medicaid in delivering inferior care to senior and
disabled citizens. Only by integrating the entire health system into a uniform system can there
be assurance that everybody is treated fairly.

A second concern relates to the role of insurance companies - which are accountable
primarily to their shareholders - in implementing the budget austerity called for by the plan.
It is true that consumers can vote with their feet in the long term by joining a different health
plan. But, when it comes to health care, short term considerations can have life and death
implications. Switching health plans does little good if the reforms result in five or fewer
competing health plans, with oligopolistic pricing and across-the-board low quality.

In your proposal, health plans whose premium bids exceed the target are assessed a
penalty if an alliance's weighted average premium exceeds its premium target; this will lead to
strong incentives for plans to keep downward pressure on their premium. This downward
pressure is positive to the extent that health plans curb administrative costs, but we are
concerned about undesirable effects if it leads insurance companies to deny legitimate claims,
cut back too far in servicing their policy holders' needs, or over-expanding its review of
provider's treatment decisions. We fear that hundreds of insurance companies, each with its
own protocols, will interfere increasingly with doctors' clinical judgments. These are problems
inherent in any system that retains a major role for private insurers. The best way to achieve
true budget discipline is by establishing a single payer accountable solely to the American
consumer - this would assure that all consumers and providers are treated fairly and equitably.

Regulation of prescription drug prices needs to be strengthened. The responsibilities
of the committee of the National Health Board should be stepped up to include broad authority
to regulate prescription drug prices. First, the Board should conduct an analysis of prescription
drug pricing, comparing prices of identical drugs in the U.S. with prices in other countries. The
Board should review the excessive profits that drug companies have made on drugs that were
discovered in part because of federally-financed research. Voluntary cost containment ~ that
limits growth of already grossly excessive drug prices — is insufficient. In many cases, price
rollbacks would be appropriate. The concept of the rebate (equal to at least 15 percent of
average manufacturer price) for certain drugs that applies to the Medicare and Medicaid drug
benefit should be expanded to all covered prescription drugs. Cost savings should be achieved
across the board, not just for drugs covered under Medicare or Medicaid.

239

The National Health Board should study ways to broaden the principle of global
budgeting to include health costs that are not included in the initial budget: supplemental
benefits, health components of workers compensation and automobile insurance, premiums for
cost-sharing benefits, long-term care benefits that are outside the package, and any other health
expenses.

We have grave doubts that competition in the health care marketplace in reality can serve
the consumer interest. We also question whether the marketplace will operate competitively or
whether the new collaboration between formerly competing providers and a more highly
concentrated insurance market will serve to maintain or raise prices as a result of oligopolistic
pricing practices. We strongly support the proposed repeal of the McCarran-Ferguson
antitrust exemption. We urge the plan to carefully spell out that Department of Justice and
Federal Trade Commission guidelines called for in the plan are intended to minimize protected
activities and maximize competition in this marketplace.

Summary of Recommendations:
Cost Containment

1 . Set the goal of an integrated global budget within a time period of five years that includes
spending under an integrated benefit system and includes all national health care
spending, to enable the system to treat all segments of the population fairly regardless
of the cause or timing of the injury or illness.

2. Treatment protocols should be developed and generated by doctors and hospitals through
a centralized system, not by utilization review companies that are accountable
individually to hundreds of insurance companies. Increased use of outcomes research
should be used to develop uniform treatment protocols.

3. The National Health Board should have broad authority to regulate drug prices, including
price rollbacks and manufacturer rebates that would apply not only to Medicare and
Medicaid prescription drugs, but to all covered prescription drugs.

4. The legislation should explicitly provide that the Department of Justice and Federal Trade
Commission minimize safe harbor exemptions from the antitrust laws and maximize
healthy competition in the health care marketplace.

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Consumer Principle:
Fair Financing

Consumers Union believes that the best way to finance health care reform is through
income-related payroll taxes, income taxes and excise taxes on tobacco, alcohol, and firearms.
Because the proposed financing does not embrace this principle, it creates inequities and fails
to generate sufficient revenue to achieve the level of benefits and subsidization we believe is
needed. Adding a cap on the individual/family premium (as percent of income) would be an
important step toward solving most of these problems.

The principle source of funding for the proposal is a premium-based employer mandate,
with reasonable limits on the percent of payroll that employers must pay. The proposal includes
subsidies for low-wage employers, significantly easing the burden on these businesses.
Individuals and families are responsible for 20 percent of the premium plus any additional
premiums resulting from plans whose costs exceed the average as well as premiums for
supplemental policies.

One of our major concerns is the proposal's lack of symmetry when it comes to
capping employer AND employee premium contribution. We believe that the employee's
share of the premium (which is proposed to be 20 percent of the weighted average plus any
amount of premium exceeding the average) should be capped at about 2 percent of income.
Without such a cap, low wage workers who are not eligible for a subsidy (i.e., those with
incomes above 250% of poverty) could face a very steep burden, especially if they want the
freedom to choose their own doctor. A single mother who works full-time, for example, could
be responsible for a premium of $900 on a $2500 policy, when the weighted average premium
is S2000 and the employer contribution is $1600, 4.5% of a $20,000 income, an unreasonable
burden for a low-income family. She would pay coinsurance and deductibles on top of the
premium costs.

Under the proposal, part-time workers are responsible for a share larger than 20 percent
of the weighted average premium because the employer share is prorated. A 15-hour-a-week
low-wage worker will be liable for 60 percent of the premium (with 40 percent paid by the
employer). It is not clear to us whether this must be paid even if the part-time worker's spouse
is employed. If so, this would put a very steep burden on the family. In any case, part-time
workers' premium payments should be capped as a percent of income, just as others' would be.

The proposal includes a windfall for early retirees and their employers: a subsidy
(from the rest of the system's participants) for people who retire between ages 55 and 65. While
we recognize that this segment of the population is in need of access to health insurance at
affordable prices, we do not believe this substantial redirection of health care dollars is
advisable. This problem points once again to the preferred way to finance health care ~ through
income-related taxes. It does not make sense to require low- wage workers to face premium
costs of 5 percent or more of their income (on top of their employer's contribution) while early
retirees, some of whom have substantial income, are responsible ONLY for the family/individual

241

premium portion. We need a system where everyone is treated the same, not a patchwork
system that results in inequities.

We believe that it is appropriate to ask the Medicare-eligible population to help pay the
cost of new prescription drug and long-term care benefits, through an increase in the Part B
premium to cover 25 percent of the new benefit cost. Without this type of provision, seniors
for the most part would receive a new benefit without having the opportunity to pay for it during
their working years. However, the higher premium would represent a burden on lower-income
seniors. We recommend that lower- income seniors (up to about 150 percent of poverty) be
exempt from the premium increase, paying for this adjustment by increasing the proportion of
the drug cost that would be paid by other seniors to perhaps 35 or 40 percent.

Summary of Recommendations:
Fair Financing

1 . Replace the mandated employer premiums with an income-related payroll tax, excluding
the fu^t $10,000 of income, eliminating inequities among two-worker/one-worker
families, part-time employees, and early retirees.

2. Cap the family and individual premium payments (for the average cost policy) at 2
percent of income. (Allow this to be exceeded if the employee buys a higher-than-
average-cost policy).

3. Ease the burden on low-wage workers by requiring employers to pay the
individual/family share (20%) of the premium for employees with incomes up to 250%
of poverty. (Employer contributions would still be subject to the overall caps).

4. To pay for the additional subsidies, for additional benefits such as long-term care, and
for creation of parity between different programs (Medicare/Medicaid/ regional alliances),
impose an income surtax, a tax on new hospital revenues that are created by reduced
spending for uncompensated care, and a tax on corporate alliances.

5. Exempt the lowest-income senior citizens (up to about 150 percent of poverty) from the
increase in the Part B Medicare premium, increasing the amount paid by other seniors
to cover 35 to 40 percent of the new prescription drug benefit. (The goal would be to
have total new premiums pay for 25 percent of the new benefit).

242

Consumer Principle:
Accountability to Consumers

In theory, the creation of health alliances as consumer purchasing cooperatives increases
the accountability of the health care system to American consumers. The make-up of health
alliance boards, with membership balanced between consumers and employers, not providers and
insurers, is an important component of this accountability.

Our biggest concern in this area is the major role that wiU be played by insurance
companies in implementing the new system. How, for example, will insurance companies cut
costs in order to live within the budget constraints? Unfortunately, we cannot assume that
insurance companies will always cut the "right" costs ~ administrative waste, unnecessary care,
and red tape. They will have a strong incentive to cut needed health care services as well. We
also fear that they will each use their own individual treatment protocols, their own utilization
review companies, and will interfere with doctors' treatment decisions.

The health care system needs more outcomes research and needs protocol for weeding
out the SI 30 billion wasted each year on unnecessary care. But we question whether this can
be done fairly and efficiently through hundreds or thousands of individual for-profit entities,
rather than through a single entity accountable only to the public.

The National Health Board is charged with awesome responsibilities that will determine
the quality of the health care system and its ability to constrain costs. It is critical that the
selection criteria for members assure the appointment of the most qualified people who are
committed to serving the interests of consumers.

The proposal allows states to establish a single-payer health care system, but includes
a provision that seems to discourage states from doing so. It would require that states
appropriate revenue from "sources other than those established by this Act" to pay for the
program. Does this provision preclude a state from imposing a payroll tax, one of the
provisions of most single-payer legislation? In light of the ability of a single-payer system to
achieve the principles of universality, cost containment, accountability to consumers, freedom
to choose providers, and fair financing, the federal government should provide the necessary
funding to states to encourage them to adopt a single payer health care system.

We are pleased that the medical malpractice proposals in the plan would not cap
damages received by the victims of medical negligence. Additionally, we applaud the provision
allowing consumers to obtain information concerning doctors who commit repeated acts of
malpractice. Providing this important information will help consumers make a meaningful
choice of doctors. We are concerned that the award will be reduced by any amount obtained
from collateral sources after a finding of malpractice. While we do not believe in double
recovery, we do think that the wrongdoer should pay, not be subsidized by the victim's
insurance policies. Malpractice premiums should be experience-rated; caps on lawyers' fees
should apply to lawyers on both sides; and to avoid conflict-of-interests, alternate dispute

243

resolution mechanisms should be conducted within the health alliance, not within individual

health plans.

Summary Recommendations:
Accountability to Consumers

1 . Make the state single-payer option a real alternative by encouraging states to exercise this
option through federal assistance, providing the necessary funding.

2. Increase accountability of insurance companies/health plans to consumers by placing
requirements on insurance company/health plan boards of directors. At least half of the
board members should represent consumer interests and have no financial stake in the
profitability of the company. Insurance company executives' salaries (i.e. total
compensation) should be open to public review and scrutiny.

3. In appointing members to the National Health Board, both the President and the Congress
should carefully review each candidate's commitment to the quality of the health care
system (while allowing for a willingness to improve the system).

4. Medical malpractice premiums for providers should be experience-rated, so that the vast
number of doctors who provide excellent care are rewarded by lower premiums and the
few doctors who provide substandard care are penalized by higher premiums.

5. Caps on lawyer fees that are imposed on lawyers representing medical malpractice
victims should also be imposed on defense lawyers.

6. Practice guidelines should not be used to shield doctors who commit malpractice.

7. The Alternative Dispute Resolution System should function at the Alliance level, not at
the health plan level because of the conflict of interest that a health plan has in any
malpractice situation.

Consumer Principle:
Freedom to Choose Providers

Freedom to choose their own health care provider is one of the most highly valued
features that consumers seek in their health care system. Consumers want to be able to continue
long-standing relationships with their family doctors, specialists, pediatricians, and other health
care providers. Often, one family will have an array of doctors, making it impossible to follow
them all to one HMO. Consumers want to be assured that if serious illness strikes, they will
have access to the highest-quality specialist and specialized treatment centers.

244

The proposal recognizes the strength of consumer sentiment on this important attribute
by requiring that each health alliance includes at least one fee-for-service plan. (States can ask
the National Health Board for a waiver from this requirement in very limited circumstances).
In most regional alliances, consumers will be able to choose from a low cost-sharing plan
(presumably in an HMO with virtually no ability to go outside the HMO for non-emergency
medical care), a high cost-sharing plan (apparently with freedom to go to a fee-for-service
doctor) and a combination plan, with most care delivered within an HMO or network, but
freedom to go outside of the network for medical care with higher cost-sharing requirements.

While this proposal does indeed provide most consumers with some flexibility, we fear
that many low- and middle- income consumers will not be able to afford to pay considerably
higher premiums that could be associated with fee-for-service plans. Without some constraint
on premium differentials between fee-for-service and HMO-types of plans, freedom of choice
of provider could be a luxury only the rich can afford. Health alliances should take steps to
assure that competition among health plans is based primarily on quality, not price. In
negotiating for a fee-for-service health plan, health alliances should address this concern and
consider ways to make this option available to all, by limiting premium differentials to about 10
percent, by requiring employers to pay the individual/family 20-percent-premium-share for
employees with incomes up to 250 percent of poverty (thus making them better able to afford
the fee-for-service option if they want it), and other options. Again, the plan should facilitate
the creation of single payer health care systems, which preserve the freedom of provider for all
consumers, through start-up grants.

Under this proposal, consumers face considerable uncertainty about whether their current
doctors will be available to them ~ even if the consumer chooses a fee-for-service option. It
is impossible for anyone to predict which of their doctors will join which HMO and whether all
of the doctors will be available in the same HMO. In order to allay concerns for this transition
to a new system, we recommend that consumers enrolled in a fee-for-service plan should be
allowed to continue to see their present doctors, even if any of these doctors sign up to work in
an HMO or physician network that is not a part of the consumer's fee-for-service plan, during
a transition period to be determined by the regional alliance.

Another concern is that a consumer will sign up for the low-cost-sharing (HMO) option
in the begiiming of the year (when healthy), and will regret this inflexibility if a serious illness
strikes. In the long-run (annual open enrollment), the consumer will be able to switch to a more
flexible health plan. We believe that in the event of serious new illness or dissatisfaction with
treatment provided, some flexibility to go outside of a low cost-sharing health plan should be
allowed. Under this proposal, plans should be allowed to recapture increased costs (or lost
revenues from higher "combination" cost-sharing) through retroactive premium adjustments from
individuals and families who exercise this option.

245

Summary Recommendations:
Freedom to Choose Providers

1 . During the transition period, consumers who enroll in a fee-for-service plan should be
allowed to see their current physicians, even if these doctors are enrolled in an HMO or
other provider network outside of the fee-for-service plan.

2. Health alliances should assure that a fee-for-service option is accessible to all consumers,
e.g., by imposing a 10 percent premium differential (over the average premium plan) for
a fee-for-service plan, or by requiring employers to pay the family/individual share of
premium for employees at less than 250 percent of poverty.

3. In the event that serious illness strikes or questions of quality arise, consumers enrolled
in a low-cost sharing plan should be allowed to seek treatment outside of the plan (paying
the higher cost-sharing amounts), until they can switch out of the plan during open
enrollment.

4. The National Health Board should facilitate the state adoption of a single payer system
through provision of necessary funding.

246

Chairman Stark. Mr. Dorn.

STATEMENT OF STAN DORN, MANAGING ATTORNEY,
NATIONAL HEALTH LAW PROGRAM, INC.

Mr. Dorn. Good morning, Mr. Chairman, members of the sub-
committee.

The National Health Law Program is the legal services national
backup center that specializes in health care issues affecting low-
income people. We work with legal aid programs all around the
country trying to help them get essential health care for their low-
income clients.

And it is quite an honor to testify this morning before you, Mr.
Chairman, and before the subcommittee. We very much appreciate
your efforts, through the years, to make sure that everyone, not
just those with means, can purchase health insurance.

And we particularly appreciate your remarks this morning, spe-
cifically directed to the needs of underserved populations. It is
quite an honor to be here.

One of the nice features of life in Washington, D.C., is that we
have access to international restaurants, offering dishes that com-
bine ingredients in strange and novel ways, sweet and sour flavors,
often combined in a single dish.

The President's health care reform plan, likewise, has its sweet
ingredients and its sour ingredients. And this morning I would like
to discuss both with respect to four issues of particular importance
to low-income consumers: First, mainstreaming low-income people
into the same health plans that serve middle class folks; second,
the issue of quality; third, the issue of affordability; and, finally,
the issue of Medicaid benefits.

First of all, in terms of mainstreaming, one of the positive fea-
tures of the President's plan is that it has features intended to per-
mit low-income consumers to choose the same health plans that
serve middle class folks.

Plans are paid the same reimbursement amounts for Medicaid
beneficiaries as for others, and the subsidies attempt to enable low-
income people to enroll in plans up to the regional average.

Unfortunately, Mr. Chairman, as you noted in your remarks,
some of the affordable provisions in the plan endanger the ability
of these positive provisions to meet their objectives, because low-
income folks may have no choice but to pick the plan offering the
cheapest out-of-pocket costs.

And, in addition, depending on the civil rights protections in the
plan, it is unclear whether the kind of redlining you outlined this
morning mav occur. So there is potential here. We will have to wait
for the legislation to see whether it is achieved.

The second issue is quality. And under the President's plan, we
would shift to a system of managed care, where the plans are paid
the same amount per consumer, regardless of how much care is
provided. That means the less care the plan provides, the more
money the plan makes. And as the GAO noted, this creates an in-
centive for underservice; this creates a need for strong consumer
protections.

And again it is unclear from the plan how strong they will be.
The framework seems to be there for consumer protections. But I

247

can tell you, as someone who works with Medicaid recipients
around the country who have been put in managed care plans in
ever-increasing numbers in recent years, it is a serious issue you
need to pay attention to.

Let me give you just one example of what can happen to folks
in the absence of consumer protections. A 51-year-old Medicaid re-
cipient in Los Angeles with a history of hypertension experienced
chest pains and swelling of her joints. She called her managed care
plan, which gave her an appointment in 9 months. A short while
later, her child came down with a 104 °F temperature, and the
child was given an appointment, 2 months in the future.

Finally, the woman went outside her managed care plan to a pri-
vate doctor who said she was in danger of a heart attack and her
child was also experiencing severe health problems.

We get examples like this constantly from around the country. So
what you need to keep an eye on, as the plan makes its way to
Congress — hopefully sometime soon — I would ask a couple of ques-
tions. One is, will the legislation direct the National Health Board
to develop strong, quantified standards for all health plans?

Second, will the standards be enforceable by private people ag-
grieved and by others?

Third, will plans be required to collect detailed data showing
what is actually being provided to consumers?

Fourth, will plans be required to extend notice and appeal rights
to patients who are denied care or who have care delayed?

And, finally, will standards regulate financial risk arrangements
within plans, which really have an enormous potential to deter-
mine whether that gatekeeper can do an honest job or is going to
be affected by financial personal incentives?

The third issue I would like to discuss is afiFordability. The late
representative Claude Pepper once explained, "For the elderly poor,
a 50 cent copayment, which seems insignificant to most of us, can
mean the difference between a needed prescription and a quart of
milk or a loaf of bread." We can only imagine what he would have
said about the administration's proposal that $5 copayments, not
50 cent copayments, should be applied to the elderly poor and to
other low-income people, $10 copayments for physician visits, and
a staggering $25 copayment for mental health visits.

Low-income people asked to make these payments will delay
seeking health care until their health problems degenerate into
emergencies. And by that time, many will suffer harm, and we will
incur unnecessary emergency room costs. This is a feature of the
plan that we think needs major improvement.

The final issue I would like to address is the issue of Medicaid
benefits. And one of the concerns we have with the President's plan
is that important Medicaid benefits are — seem to be eliminated for
many Medicaid recipients.

I will give you just a few examples. Others are in my statement.

One is the issue, again, of mental health services where people
who are severely mentally ill right now in many States have access
to services as needed.

Under the President's plan, after 30 outpatient visits, you don't
get any more outpatient visits. For folks who are seriously men-

248

tally ill, it is just not enough. They are going to lose essential bene-
fits.

A second example: Disabled people, adults and children, who
need rehabilitation services to prevent deterioration in function,
those services are covered quite often now. They won't have those
services covered under the President's plan.

A final example would be low-income adults who need dental
services or eyeglasses for employment. Most Medicaid programs
provide those benefits right now. And they wouldn't any more
under the President's plan.

Now we hear these last two issues are on the table in the admin-
istration, and they are up for grabs. And if you folks want to weigh
in on that, we would be delighted. But if the plan reaches the Hill
in the form that we saw in the September 7 draft, improvements
will need to be made.

In short, Mr. Chairman, sweet and sour tastes may do very well
in restaurant reviews; but when it comes to health care policy, we
hope very much that you will keep the sweet and improve the sour.

[The prepared statement follows:!

249

TESTIMONY OF STAN DORN
MANAGING ATTORNEY, NATIONAL HEALTH LAW PROGRAM, INC.

Good morning, Chairman Stark and members of the Subcommittee. I am Stan Dom,
Managing Attorney at the National Health Law Program, the legal services national back-up
center that specializes in health care for low-income people. We work with hundreds of legal
services programs around the country that try to help their indigent clients obtain the basic
necessities of life, including health care. It is an honor to testify this morning about consumer
issues and national health care reform before some of the Congress' most distinguished
champions of consumer rights.

One nice feature of Washington is its abundance of interesting, international restaurants,
often featuring dishes with striking combinations of sweet and sour tastes. The Administration's
proposed health care plan likewise has its sweet and sour ingredients. This morning, I would like
to discuss both sides of the Administration's September 7 draft plan, focusing on four issues that
are important to low-income consumers: mainstreaming low-income people into the same health
plans that serve middle-class consumers; assuring that managed care is quality care; making
coverage both universal and affordable; and ensuring that we do not fuiance health care reform
by cutting back on current, essential coverage for the most vulnerable members of our community
- Medicaid beneficiaries who are both poor and sick.

1. Low-income consumers should have the opportunity to choose the same
systems of health care that serve middle-class consumers. One of the positive features of the
President's September 7 draft plan is that it attempts to give low-income consumers access to the
same health care systems that will serve middle-class people. It provides that health plans will
receive the same basic amount for Medicaid beneficiaries as for other consumers. It also permits
low-income people, whether or not they have Medicaid coverage, to enroll in any health plan up
to the regional average price. These are critically important measures to prevent low-income
consumers from being segregated into inferior and distinct health care plans, segregation that
often would be both economic and racial. As I will mention in a few moments, however, these
positive measures could fail to achieve their objective unless the Administration's bill does a
better job of making health care affordable to low-income consumers.

2. The expansion of managed care should be accompanied by strong systems of
consumer protection. Years ago, workers descending into the coal mines always brought along
canaries, who are very sensitive to poisonous gas leaks. When the canaries fainted or died, the
miners knew it was time to leave. Mr. Chairman, Medicaid beneficiaries have been America's
canaries in the mine of managed care. Enrollment in Medicaid managed care nearly doubled
between 1987 and 1992.' During Fiscal Year 1992 alone, Medicaid enrollment in managed care
increased by 35%, reaching 12% of all Medicaid beneficiaries.^ The experiences of these low-
income consumers illustrate the need for strong consumer protections to safeguard quality of care.

'GAO/HRD-93^t6. MEDICAID: States Turn lo Managed Care to Improve Access and Co ntrol Costs (March 17, 1993) i
'HHS News (Nov. 30. 1992) p. 1.

250

Managed care dramatically reverses the incentives affecting the health care industry. As
the GAO noted, "While fee-for-service payments give providers incentives to provide too many
services, capitation payments give providers incentives to provide too few services."' Without
strong consumer protections, this incentive to underserve can create serious harm.

For example, in California, special Primary Care Case Management systems ("PCCMs")
have been carefully designed to slip through the loopholes in state and federal managed care
regulations.* Without protections, the Medicaid consumers in these plans have often suffered
grave harm. For example:

•A 51 year old woman in Los Angeles with a history of severe hypertension suffered
from chest pains and swollen joints. She could not get an appointment with her provider
for nine months. In the meantime, her four-year old son suffered a febrile seizure, with
a 104-degree temperature. The managed care plan offered only an appointment more than
two months away. Finally, the mother and her son went outside their managed care plan
to a private doctor, who found that the mother was at grave risk of heart attack and that
the child needed immediate treatment.

•In San Bemadino, California, a FCCM routinely disenrolls consumers brought into the
County's trauma care center. While this neatly excuses the PCCM from paying for
expensive treatment, it has forced patients to go without coverage for thirty days or more
while their status is changed to fee-for-service. This has left many patients unable to
obtain critical follow-up care, such as skin graft clinic follow-ups for bum victims.

•In Fresno, California, one legal services advocate reports that, of thirty PCCM families
in her caseload, only one has been able to see a doctor. The rest have been deterred by
six to seven hour waits at clinic offices and the absence of transportation to a clinic as
far as twenty miles from the patients' homes.

Many think of California as a trend-setting state, often for the better, but sometimes for the
worse. Unfortunately, in this case, these California stories about Medicaid managed care typify
those we hear from legal services advocates all over the country.

Fortunately, the Administration's plan proposes a framework for strong consumer
protection. Under the September 7 draft, the National Health Board will develop core quality
and performance measures and consumer survey questions, including those directed to
underserved populations and consumers changing health plans; national goals and minimum

'GAO/HRD-93-46. supra .

The Medicaid quality protections in 42 U.S.C. 1396b(mX2XA) apply only to capitated plans furnishing either inpatient care
and one other service described in 42 U.S.C. 1396d(a)(2). (3). (4), (5) or (7) or three such outpatient services. PCCMs provide
one or two such services and abstain from covering inpatient hospital care, thereby evading federal protections. They are also
exempt from California's requirements under the slate's Waxman-[)uffy and Knox-Keene acts.

251

performance standards on selected quality measures; and conditions of participation required of
health plans. Further, states will be required to certify health plans. This framework may well
provide essential protections, depending on what is in the September 7 legislation. Here are a
few key questions to keep in mind when the legislation arrives at the Congress:

•Will the legislation direct the National Health Board to develop strong, quantified
standards for all health plans? Such standards might govern, e.g., travel and waiting
times for care, the percentage of children receiving age-appropriate immunizations, and
the percentage of pregnant women receiving prenatal care during the first trimester,
including for underserved populations.

•Will these standards be enforceable? For example, will aggrieved consumers have a
right to sue, with access to all proven remedies? Will plans that violate these standards
be barred from enrolling new consumers until violations have been corrected? When
consumers become ill because of inadequate care and change health plans, will the plans
they leave be required to continue paying for care until the illness concludes?

•Will plans be required to collect detailed data on utilization, available for analysis by
diagnosis code and patient characteristics like age, race and sex? Will data collection also
include information on waiting times and length of visit for primary care and specialty
referrals? Will data collection use nationally compatible forms needed to cross-tabulate
and compare key information? Will such information, without patient-identifying
information, be publicly available?

•Will health plans be required to extend notice and independent appeal rights to patients
who request services that are delayed or denied? Will such rights include access to out-
of-plan second opinions? Will expedited appeals to neutral third parties be available in
urgent care situations?

•Will standards regulate financial risk arrangements within plans? For example, will
plans be forbidden from giving primary care "gatekeepers" personal, financial incentives
to deny referrals to specialty care?

Many have already characterized the National Health Board as an unnecessary and
harmful new bureaucracy. Mr. Chairman, if you want to stop people from making money in
ways that cause harm - whether you're talking about bank robbery or denial of necessary health
care - you need someone to specify what's illegal, someone to detect wrongdoing, and someone
to punish it To paraphrase Winston Churchill, bureaucracies like police departments and courts,
or the National Health Board, are the worst method of protecting the public from dangerous
profiteering - except for all the other methods.

3. Coverage should be both universal and afTordable. Perhaps the most important
positive feature of the Adminisn^tion's plan is that it provides nearly universal coverage,
guaranteeing that people who suffer economic misfortune or illness will nevertheless keep their

health coverage. Under alternative proposals before the Congress, this is not the case. Some
proposals, for example, will not provide health security until after substantial cost savings have
been achieved in Medicare and Medicaid.

For low-income consumers, universal coverage will only be meaningful if it is affordable.
Unfortunately, the September 7 draft presents extremely serious problems in this area. The very
poorest people in our community will be required to make the same co-payments asked of
middle-class people enrolling in HMOs. As the late Rep. Qaude Pepper once explained,

"For the elderly poor, a fifty cent co-payment which seems insignificant to most of us can
mean the difference between a needed prescription and a quart of milk or a loaf of bread.
What right do we have to ask them to make this choice?"'

We can only imagine what Rep. Pepper would have said about the September 7 draft's proposed
co-payments of $5, not fifty cents, per prescription, $10 per doctor visit, and $25 per mental
health visit for the elderly poor and other low-income people. For the average non-poor family,
the equivalent co-payments would be $37 per doctor visit; $18 per prescription; and $92 per
mental health visit.* Such co-payments force low-income people to defer care until health
problems degenerate into emergencies. The result: their health is endangered, and emergency
room costs increase needlessly.

One Rand Corporation study found that co-payments applied to poor people increased
overall health care costs, as fewer people saw doctors, and more ended up in the hospital.'
Another Rand study found that, while middle-class people's health may not have suffered from
copays, significant co-payments for low-income people with heart disease increased short-term
risk of death by 10%.' The President has proposed that we move away from high-cost
emergency care towards low-cost primary care ~ but the co-payments proposed in the September
7 draft prevent the achievement of that goal for low-income people.

These issues of affordability also interfere with a second important goal of the President's
plan: a single health care delivery system for all. Without sti-ong protections for low-income

•House Select Committee oo Aging, Comm. Pub. No. 96-181 (1979), p.28.

•Committee on Ways and Means. U.S. House of Represenubves, Overview of Entitlement Propam s: 1993 Green Book.

Batkgaind Material and Datii on Program? \yiaiin ttit Juririitiion of the Comminw on w?y? jind Mtanstfuly 7. 1993) p. 1214,

showing that, in 1991. the mean income, per family member, in non-poor families was 3.67 times that in poor families.

'Helms, sUL "Copayments and the Demand for Medical Care: The California Experience." 9 Bell J. of Econ. I (1978).
rinding that, in 1972. $1 Medicaid copays for the first two physician visits a mcnth decreased physician visits by 8%. increased
inpatient hospital use by 17%, and inaeased overall program costs between 3-8%. Although fifteen years old, this is the only
study of which we are aware that analyzes overall program costs and savings caused by imposing across-the-board primary care
copays specifically on an indigent population.

•Brook, £LaL. "Does Free Care Improve Adults' Health?" 309 New England J. of Med. (Dec. 8. 1983). 1426, 1431. 1433
(Table 8).

253

people, both in terms of premiums and co-payments, the poor will have no choice but to pick the
health plan promising the lowest costs, even if that changes from year to year. The result may
be a distinct tier of health plans for the poor providing inferior quality care, segregated along
racial and economic lines.

To avoid these problems, we suggest two changes to the September 7 draft plan: co-
payments for low-income consumers should be limited to the nominal co-payments permitted
under Medicaid, and eliminated for very low-income consumers (e.g., those with incomes below
the federal poverty line); and premiums should be capped as a percentage of household income,
which should decline in lower income brackets and be forbidden for the very poor, much as small
employers have a premium cap that declines with company size and worker income.

4. We should not Tinance health care reform by denying currently available,
essential care to Medicaid beneficiaries. Medicaid now cares for over 30 million poor seniors,
disabled people and families with children. These vulnerable people should not be asked to
surrender essential care to help pay for national health care reform..

Unfortunately, three features of the September 7 draft plan do exactly that First,
Medicaid beneficiaries, along with other low-income people, will be asked to make substantial
co-payments for basic primary care. Medicaid currently scales down co-payment amounts to fit
low-income budgets and safeguards access to care. Most commonly, state Medicaid programs
have chosen to impose no co-payments on the poor. Copays rarely exceed $2 for physician and
mental health visits or $1 for prescription drugs. States may adopt total caps on copays that
protect low-income people with significant health care needs. Medicaid also requires providers
to serve those who cannot pay co-payments in advance, permitting only later billing in such
cases. Finally, certain categories of people (e.g., children and pregnant women) and services
(e.g., family planning) are exempt from co-payments under Medicaid.

Second, the Administration's plan may end many crucial Medicaid-covered services that
are outside the plan's benefits package. Such services include:

•preventive checkups for children and adolescents as recommended by the American
Academy of Pediatrics, which exceed the periodicity schedule in the September 7 draft
plan;

•many rehabilitation and therapy services for congenitally disabled children and adults,
particularly where such services prevent deterioration in function but do not cause rapid
improvement;

•restorative dental care for children, such as fillings and treatment of gum disease;

•mental health services for the seriously mentally ill, beyond the limits in the draft plan
(e.g., 30 outpatient therapy visits per year, and 30 days' hospitalization per spell of
illness); and

254

•dental services and eyeglasses low-income adults need for employment

Under the Administration's plan, Medicaid beneficiaries would lose guaranteed coverage of these
services. Instead, states would receive block grants, along with the power to deny benefits as
they see fit

Third, Medicaid beneficiaries not receiving cash assistance would be forced, for the first
time, to pay premiums for health insurance. Nearly 40% of Medicaid beneficiaries fall into this
category.' Such premium payments would force them to go without otfier necessities of life.
According to one recent study authored by academics at Harvard and the University of Chicago
and the President of the Kaiser Foundation, among current Medicaid beneficiaries:

•28% reported not having enough money to buy food;

•3 1 % lacked money needed to pay their rent or mortgage; and

•29% could not pay their heat and light bills.'"

of our

At the very least, the Administration's plan should do no harm to the vulnerable members
community who have achieved precarious health coverage through Medicaid.

In conclusion, Mr. Chairman, combinations of sweet and sour flavors may do well in
restaurant reviews, but when the Administration's plan comes before the Congress, we hope you
will do your best to keep the sweet and change the sour.

Research Seivice. Mfflifjild fintm Bffl*; Butkgrewri Pta mt Amtiwi? (A 1993 Upjttt) (January 1993)
p. 589 (38%).

'°BIendon, Donelan. Hill, Scheck, Carter, Beatrice, Altnsm, 'Medicaid Benericiaries and Health Reform" Health Affairs
(Spring 1993) p. 141.

255

Chairman Stark. Mr. Kirsch.

STATEMENT OF RICHARD KIRSCH, EXECUTIVE DIRECTOR,
CITIZEN ACTION OF NEW YORK, CITIZEN ACTION

Mr. Kirsch. Grood morning. I guess good afternoon now. My
name Is Richard Kirsch. I am executive director of Citizen Action
of New York, and I am testifying today for National Citizen Action,
a grassroots consumer lobby with 3 million members nationally
ana offices in 31 States.

It is very clear what consumers want in health care. They want
to know they will be covered, which means they will be able to af-
ford their coverage. They want their coverage to meet all their
health care needs, from cradle to grave, preventive care to long-
term care. They want to be able to choose their own health care
provider, and they want to know they will be able to afford the care
that the provider offers them.

The proposal that meets these common sense consumer needs is
H.R. 1200, introduced by Congressmen McDermott and Conyers,
sponsored by the chairman as well as more than 80 other Members
of this House.

H.R. 1200 sets the standards by which consumers will measure
all other proposals. We urge Congress to pass H.R. 1200. Should
that not come to pass, Congress certainly should allow States to
provide better access, better coverage, guaranteed affordability, and
complete freedom of choice to their residents through the single-
payer State option. The State single-payer option must be available
to States without burdensome Federal waivers and without restric-
tions on States' ability to raise revenues for health care.

In the few minutes I have this morning, I want to focus on the
first concern of consumers: Will they be able to afford their health
plan? If they can't afford it, they won't get it; and the proposal, no
matter what it says, will not be universal.

The point I am making is exactly that which Mr. Grandy and
Ms. Porter talked about before. The Clinton plan, as do other pro-
posals — such as that offered by Mr. Cooper, Mr. Grandy and Mr.
Michel — all start with a flawed premise for affordability: Rather
than base premiums on how much people can afford, premiums are
based on family size and geography, factors unrelated to income.
Then to try to correct this flaw, and in order to do so, the plans
begin to look like a welfare system, asking working people to apply
for subsidies based on their relationship to the poverty level. Who
are these families? They are today's uninsured, more than 80 per-
cent of whom are in working families but who hold down low-wage
jobs, part-time jobs, seasonal jobs, or are self-employed.

I like to think about a typical family, the husband, works sea-
sonal construction, makes a good income when he is working, but
he is not always working. His wife works as a cashier on the week-
ends and evenings. Under the Clinton plan, they will have to pay
100 percent of the premium, less what their employers contribute,
less whatever their subsidies are, if they apply for subsidies and
if they end up qualifying for subsidies. But they don't know how
much they will work at the beginning of the year or during the
year, for that matter. They don't know what their employer's con-
tribution will be. how much their subsidy will be, or if they will be

256

eligible, or if they will have the cash to pay for the premium when
the husband is laid off.

In short, for this family and millions like them, the bright prom-
ise of the Clinton health security card may not be within their fi-
nancial reach.

Now let me make it clear that the plans covered by Mr. Cooper,
Mr. Grandy, and Mr. Michel are far worse. At least under the Clin-
ton plan, the employers will pay 80 percent of the premium for the
time the family is working. The Cooper and Michel plans don't ask
employers to contribute at all. These proposals offer no promise of
health security.

To go back to the debate that Mr. Grandy had before, he said his
bill subsidizes up to 200 percent of the poverty level. But that is
for the entire premium. That means a family that makes $30,000 —
that is above 200 percent of the poverty level, a family of four —
is going to have to pay that entire $3,500 or $4,000 premium. They
won't be able to afford it.

The Clinton plan does two things — at least the proposal does; we
will see what the bill does. The plan does two things: It subsidizes
up to 150 percent for a working family, which Mr. Grandy talked
about, but only for the 20 percent share the family has to pay. And
then when you get these part-time workers who get some employee
contributions and some employer contributions, then it is up to 250
percent of the poverty level. That is still not good enough.

We can fix the Clinton plan to make the health security card af-
fordable. It is very simple. We set the family premium as a per-
centage of income. Have family members pay into the system when
they are working. When they are not working and they don't have
any other income, they shouldn't pay in. That is the best way to
do it.

Now, even within the Clinton system of fiat premiums, as fiawed
as it is, you can still salvage affordability. The plan should do for
individuals what it does for business, limit the amount of pre-
miums a family pays to a percentage of income.

After all, the Clinton plan reassures businesses who will also be
paying fiat premiums that, no matter what, they won't have to pay
more than 7.9 percent of payroll for health care; for small, low-
wage businesses, as little as 3.5 percent. And, of course, businesses
only pay for employees when they are on the payroll.

What is good for American business certainly should be good for
American families. Americans will be able to afford their health
coverage if premiums are limited to a percentage of income, with
lower limits for lower-wage families.

The Clinton plan has other essential measures that need to be
maintained if the basic financial underpinnings of private insur-
ance are to be fair and affordable. The opt-out for large businesses
should be eliminated. By no means, no further reduction of the opt-
out can be allowed. That fundamentally undermines financing for
those in the health alliances and would be very costly to taxpayers.

Pure community rating must be maintained, and the risk adjust-
ment system must be up and working. We actually have some ex-
perience in New York on how to do the risk adjustment system
from the new community rating law.

257

Let me conclude by saying that if we guarantee affordability of
premiums and keep these essential insurance reforms, this health
security card will actually be attainable. If not, it is not going to
be within everybody's grasp.

Thank you.

Chairman Stark. Thank you.

[The prepared statement follows:]

258

Testimony of Richard Kirsch

Executive Director - Citizen Action of New York

Ways and Means Health Sub-Coiranittee

U.S. House of Representatives

October 21, 1993

Good morning Chairman Stark, members of the Committee. My name is
Richard Kirsch, Executive Director of Citizen Action of New York. I am
testifying today on behalf of national Citizen Action, a grassroots
consumer lobby with 3 million members and offices in 31 states.

When consumers consider health care they have four, very simple
questions that need to be answered, the same question anyone would ask if
they were to purchase a private insurance policy:

1. How do I qualify for coverage?

2. Will I be able to afford the coverage?

3. Are all my health care needs covered?

4. Who can I go to and get health care?

In going through this common-sense check list, it is very clear why
consumers prefer HR-lfoo, the American Health Security Act, introduced by
Mr. McDermott and Mr. Conyers and now sponsored by more than 80 members
of the House. Alone among the leading health care proposals it:

1. Covers every resident with the same standard of
care, without regard to age, income, work or health status;

2. There are no financial barriers to care, either through
premiums or out-of-pocket costs;

3. It provides comprehensive coverage of all health care needs,
from preventive through long-term care;

4. It offers complete freedom-of- choice of health care
provider, without any financial burden for exercising that choice.

HR-1200 sets the*standard by which consumers will measure all other
proposals. We urge Congress to pass HR-1200.

Should that not come to pass, Congress certainly should allow states
to provide better access, better coverage, guaranteed af fordability and
complete freedom-of-choice to their residents, through the single-payer
state option. The state single-payer options must be available to states
without burdensome federal waivers and without restrictions on states'
ability to raise revenues for health care.

The Clinton health care plan fails to realize the ideal on any of
the four measures consumers will use. It's not the best policy. But it
does have many good features, and even within its faulty framework can be
improved to deliver good health coverage to consumers. In the following
we describe how the Clinton plan measures on the four basic consumer
questions and how it can be improved:

Coverage . The plan does offer a health security card to every
resident. But senior citizens are kept under a separate system, a system
with less coverage and higher costs. In addition, full-time employees of
corporations who employ more than 5,000 may be put in a separate system,
with different and probably fewer choices of health plan.

Coverage improvements in the Clinton plan:

1. Provide the same benefits to senior citizens as to those in
the health alliances, and provide Medicare beneficiaries with the same
limitations on out-of-pocket costs.

2. Eliminate the opt-out for large employers.

Af fordability - premiums . The Clinton plan, as do other proposals
such as that offered by Mr. Cooper and Mr. Michel, all start with a
flawed premise for af fordability. Rather than base premiums on how much
people can afford, premiums are based on family size and geography,
factors unrelated to income. Then, to try to correct this flaw, the plans
look like a welfare system, by asking working people to apply for
subsidies.

Who are these families? They are today's uninsured, 88% of whom are
in working families, tJut who hold down low-wage jobs, part-time jobs,
seasonal jobs, or are self-employed. I like to think about a typical
family: the husband works seasonal construction, and makes a good income
when he's working, but he's not always working. His wife works as a
cashier at K-Mart, weekends and evenings. Under the Clinton plan they'll
have to pay 100% of the premium, less what their employers contribute

260

when they work, less whatever the subsidies are, if they apply, if they
qualify. But they don't know how much they'll work, what their employer
contribution will be, how much their subsidy will be or if their
eligible. Or, if they'll have the cash to pay their premiums when the
husband is laid-off.

In short for thirf family, and millions like them, the bright and
very welcome promise of the Clinton Health Security Card, may not be
within their financial reach.

Of course, plans such as offered by Mr. Cooper and Mr. Michel are
far worse. At least under the Clinton plan, employers will pay 80% of the
premium for the time the family is working. The Cooper and Michel plans
don't ask employer's to contribute at all; these plans offer no promise
of health security to Americans.

Making Premiums Affordable Under the Clinton plan. To best way to
make premiums affordable under the Clinton plan, and therefor make the
plan truly universal, is to set the individual/family premium as a
percentage of income, *and have family members pay into the system when
they are working. When they're not working, or don't have other income,
they shouldn't pay in.

While this would be the best route, the simplest route, even within
the flawed Clinton system of flat premiums, af fordability can still be
salvaged. The plan should do for individuals what it does for business:

1 . Limit the amount of premiums a family pays to a percentage
of income, with lower limits for lower-wage families.

2 . Require premium payments only when individuals are employed
and have no other income.

After all, the Clinton plan reassures businesses, who will also be
paying flat premiums ^lat, no matter what, they won't have to pay more
than 7.9% of payroll for health care. And for small, low-wage
businesses, as little as 3.5%. And of course, businesses only pay for
employees when they are working.

What's good for American business is certainly good for American
families. Americans will be able to afford their health coverage if
premiums are limited as a percentage of income, with lower limits for
lower-wage families.

261

The Clinton plan does have other essential measures that need to be
maintained if the basic financial underpinnings of the private insurance
system are to be fair and affordable:

1. The opt-out for large business should be eliminated. And by
no means further reduce the opt-out; that would fundamentally undermine
financing for those in the health alliance system and be very expensive
to taxpayers;

2. Pure community rating must be maintained. Any dilution of
the community rating system, for example by allowing age to be a rating
factor, raises health care costs to those who most need health care;

3. The risk adjustment system must be up and working, and
include poverty as well as demographic and health costs as factors.

Affordability - Out-of-Pocket Costs . The out-of-pocket costs in
the Clinton plan will prevent access to health care for low and
moderate income people. Ten dollars a visit may not seem like a lot for
most families, but it is a great deal to a family that doesn't have the
money. And a low-income family with three kids, all of whom have ear
infections, will be facing a $30 charge.

Out-of-pocket costs can also mount up quickly for the very sick or
for those who have special health needs and need to be in the
fee-for-service system, in order to have access to specialists who know
how to care for them.

Improving the Affordability of Out-of-pocket Costs in the Clinton
Plan:

1. Eliminate out-of-pocket costs for all individuals who are
now eligible for Medicaid and for others with low-incomes;

2. Eliminate the out-of-pocket costs for the new Medicare
prescription drug benefit for low-income seniors;

3. Subsidize the fee-for-service out-of-pocket costs for people
with low-incomes and disabilities or chronic health conditions.

Benefits Under the Clinton Plan: While the Clinton's plans benefits
are generally good they still are lacking in several important respects.
Benefits are usually kept out of a plan not because they aren't needed,
but in-order to "save" money for the plan. For instance, excluding adult
dental care doesn't cure tooth decay; it lowers the cost of the benefit
package. But does it save money? The person whose teeth are rotting

still has to pay the dtentist. And it may cost him or her more if the
lack of preventive dental coverage delayed a visit to the dentist, and
the tooth decay is advance. Excluding coverages only saves money for the
plan; it shifts costs to consiuners and to the health care system.
Instead, all measures that maintain health and cure disease should be
included in the plan and benefit from the insurance concept.
Benefit Improvement b Needed in the Clinton Plan:

1 . Lower the threshold for long-term-care to two Activities of
Daily Living and add institutional long-term-care;

2. Provide full mental health coverages immediately.

3 . Medicare recipients should receive the same benefits as
other Americans, inclijding preventive care and dental care.

Freedom-of -Choice ; For the many Americans whose choice of health
care plan is now restricted by their employer, the Clinton plan increases
freedom-of-choice. But the plan's emphasis on managed care may deny
access to freedom of choice to Americans who can't afford the higher
premiums and out-of-pocket costs in the fee-for-service system. The
higher costs of fee-for-service will be a serious burden to people with
serious or chronic medical problems, and who need access to certain
providers or to a range of specialists that may not be found in any one
plan. In addition, allowing managed care plans to compete on price,
rather than quality, will permit them to provide inferior health care and
still attract people who can't afford higher cost plans.

Improving Freedom-of -Choice in the Clinton Plan:

1. Require states to limit any plan premiums, including
fee-for-service, to no more than 20% greater than the weighted average
premium;

2 . Subsidize the fee-for-service premium for low-and-moderate-
income people with serious or chronic health problems, or with
disabilities.

Cost Controls; The sophisticated American consumer will ask one more
question: will I be cible to afford my coverage next year? The scourge of
double-digit health care price increases must be stopped. The Clinton
plan's provisions requiring caps on insurance premiums, as a backstop to

263

managed competition, are an essential part of the plan. The price caps
must be maintained if the nation is to have any assurance that health
care costs will be affordable to families, businesses and taxpayers.
Improving Cost Controls in the Clinton Plan:

1. Directly limit price increases for prescription drugs,
medical equipment and supplies. These national products are not as
amenable to local negotiations and networks as provider fees;

2. Limit insurance company administrative costs to 5% of
premiums. After all, that is a figure almost 2.5 times the administrative
cost of Medicare. Assuring that 95% of premiums go to pay for health
care, rather than administration and profit, will not only control costs,
but will limit skimping on care and improve quality;

3. Prohibit case-by-case utilization review. As the
Congressional Budget Office has found such review is more costly than
reviewing physician practicfe patterns. Limiting such review will mean
that a patient and provider will make decisions on health care, not an
insurance company. But it will still allow managed care plans to review
and improve physician practice.

Before concluding, we should note that plans such as proposed by
Congressman Michel (HR-3080) and Congressman Cooper (HR-3222) fail to
meet any of the four consumer measures . The plans create many tiers of
health care coverage, are unaffordable in both their premiums and
out-of-pocket costs to millions of Americans, don't promise any level of
benefits, deny freedom-of-choice of provider and allow health care costs
to continue their upward death spiral.

The improvements we propose for the Clinton plan will still not make
it as simple, as affordable or as accountable to consumers as the
single-payer plans. Congress should instead enact HR-1200. If
single-payer is not enacted on the national level. Congress should
make the state single-payer option easy to implement.

While the changes we propose in the Clinton plan won't make it as
consumer-friendly as rfR-1200, they will vastly improve on the President's
proposal. By changing the President's proposal as we have
suggested. Congress will deliver on President Clinton's promise of health
security for all Americans.
Thank you.

264

Chairman Stark. Ms. Cain, you were scheduled to be third, and
you sat in the wrong seat; and it just confused the Chair. So I
apologize. But we saved the best for last.

Why don't you, representing the League of Women Voters, begin.

STATEMENT OF BECKY CAIN, PRESIDENT, LEAGUE OF WOMEN
VOTERS OF THE UNITED STATES

Ms. Cain. Thank you. And I apologize for having been in the
wrong chair.

Mr. Chairman, members of the subcommittee, I am Becky Cain,
president of the League of Women Voters of the United States. I
am very happy to be here today to comment on President Clinton's
proposed health care reform plan.

The League of Women Voters is a nonpartisan citizen organiza-
tion with approximately 200,000 members and supporters nation-
wide.

The health care system has concerned League members for many
years. In 1990, we began a 3-year intensive study on the delivery
and financing of health care in the United States. Leagues and
League members across the country carefully examined the prob-
lems and considered solutions to the health care crisis.

After thousands of hours of grassroots debate, League members
reached consensus on health care reform. That consensus is the
basis for my testimony today.

The League of Women Voters believes that fundamental health
care reform must provide universal access to quality health care for
all U.S. residents, regardless of ability to pay, and must include
stringent cost control measures for health care outlays.

It is clear that our current health care system is failing. It is fail-
ing our Nation's families, and it is failing our Nation's economy.
Something is fundamentally wrong when mothers cannot afford
prenatal care, when children don't receive routine vaccinations,
when working families cannot afford health insurance, and when
older parents are left destitute, without adequate long-term care.

In a recent national public opinion poll, Americans ranked health
care as the most important issue for citizens to get involved in,
more important even than the economy and the environment.

Health care is on the mind of every citizen in America today.
And the League of Women Voters wants to ensure that the con-
cerns of citizens are on the mind of every legislator involved in
shaping tomorrow's health care system.

As citizens, we say to you, our elected representatives, as clearly
and as forcefully as we can, fix these problems; pass comprehensive
health care reform.

The League of Women Voters believes that President Clinton's
health care reform package does mark a critical step forward. It
will fix the fundamental flaws in our Nation's health care system,
and it does offer real reform.

Under the plan, Americans will be covered no matter where they
live, where they work, or how much they earn. The plan's basic
benefits package will be a boon to people's health. For the first
time, all Americans will be guaranteed coverage for preventive, pri-
mary, and acute care; and reproductive health services including

265

abortion are in the plan. Mental health services and long-term care
are also included but are limited to keep costs down.

Among the plan's most critical features are its built-in cost con-
trol measures. By standardizing forms, introducing new competi-
tive structures, and limiting spending, the plan has effective ways
of cutting waste and reducing costs.

The President's health care plan is not perfect, but it is fair. It
will need some fine tuning in the legislative process. For example,
citizen and consumer participation must be included in all aspects
of the plan's implementation to ensure that government-sponsored
programs are responsive to people's needs.

Tne administration of the health care system must be a process
in which citizens can express their views and participate. We be-
lieve that State and Federal programs, and especially the health al-
liances that will be created as a result of health care reform,
should follow the Federal policy of open government, including
open meetings, full access to information, open regulatory proc-
esses, adequate comment periods, and other protections to make
sure that citizens are involved and aware.

Health care reform will need bipartisan support. The League is
encouraged that many of the goals for reform are now shared by
key Members of both political parties on Capitol Hill. Congress
must not lose sight of the cost of inaction on this critical issue.
Americans cannot afford a protracted political debate on national
health care reform.

There will be no perfect solution to this crisis. Not everyone will
get everything they want. But for once, everyone has the possibiHty
of getting what they need. This, in itself, will be a giant step for-
ward. We need a viable plan that gives all Americans a more hu-
mane health care system.

The President's plan is an effective blueprint for reform. Con-
gress must now seize the momentum. There can be no turning
back. It is time to forge ahead and enact comprehensive health care
reform.

Thank you, Mr. Chairman.

[The prepared statement follows:]

266

■THE LEAGUE
OF VX'OMEN X'OTERS

TESTI>101JT BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE HOUSE WAYS AND MEANS COMMITTEE

PRESIDENT CLINTON'S HEALTH CARE REFORM PLAN

BT BECKY CAIN, PRESIDENT

THE LEAGUE OF WOMEN VOTERS OF THE UNITED STATES

Diane B. Shrndaii
Taylor Uke Milage. Texas

Rubin Seaborn
Sc Petenburg, Flunda

October 21, 1993

Mr. Chalnnaii, nembars of the sttbcomnlttee , I am Eccky Cain,
pr«sldent of the League of Woicen Voters of the United States. I
am very happy to be here today to comnent on President Clinton's
proposed health care refom plan. I would also like to discuss
the critical need for conprehenslve health care reform and to
outline the League's views on what should be Included In any
effective reform plan.

The League of Women Voters Is a ncn-partlsan citizen organization
with approximately 200,000 members and supporters In all fifty
states, the District of Columbia, Puerto Rico and the Virgin
Islands. For almost 75 years, Leegues across the country have
worked to encourage the Informed and active participation of
citizens In government. The League Is expert at giving citizens
the tools necessary to make Important decisions on critical public
policy Issues.

Linda Moscaiella

Kathleen WeiwnberR

The health care system has concerned League members for many
years. In 1990, we began a three-year Intensive study on the
delivery and financing of health care In the United States.
Leagues and League members across the country carefully examined
the problems aiid considered solutions to the health care crisis.
After thousands of hours of grassroots debate. League members
reached consensus on health care reform. That consensus Is the
basis for my testimony today.

The League of Women Voters believes that fundamental health care
M,„D,^io. reform must provide universal access to quality health care for
all U.S. residents regardless of ability to pay and must Include
stringent cost control measures for health care outlays.

It Is clear that our current health care system Is falling. It Is
falling our nation's families and It Is falling our nation's
economy. Millions of Americans are losing the battle to keep up
with rising health care costs. As a nation, we spend $1 out of
every $7 we earn on health care. Families feel uncertain about
their ability to afford adequate care. An extended hospital stay
or long-term care for aging parents can deplete any family's
budget. Our nation's businesses cannot compete In a world
economy, and we cannot assure good-paying jobs, when health care
costs are spiralling out of control.

For those who cannot afford health Insurance — and 37 million
people have no health Insurance — the picture Is even more grim:
no doctor when one Is needed, no medicine when Illness strikes.
Something Is fundsKentally wrong when mothers can't afford
prenatal care, when children don't receive routine vaccinations.

267

when working fandlles can't afford health Insurance, and when older
parents are left deotltute without adequate long-tetn care.

In a recent national public opinion poll, Americana ranked health cart
as the most laportant Issue for citizens to get Involved In ~ tncre
liEportant even than the economy and the environment. Health care Is on
the mind of every citizen In America today. And the League of Woman
Voters wants to ensure that the concerns of citizens are on the mind of
every legislator Involved In shaping tomorrow's health care system.

Ae citizens, we say to you, our elected representatives, as clearly and
as forcefully as we can: Fix these problems; pass comprehensive health
care reform.

The League of Women Voters believes that President Clinton's health care
reform package marks a critical step forward. It will fix fundamental
flaws in our nation's health care system. It is real reform.

Under the plan, Americans will be covered no matter where they live,
where they work or how much they earn. The plan's basic benefits
package will be a boon to people's health. For the first time, all
Americans will be guaranteed coverage for preventive, primary and acute
care; and reproductive health services, including abortion, are in the
plan. Mental health services and long-term care are also Included, but
are limited to keep costs down.

Among the plan's most critical features are its built-in cost control
mechanisms. By standardizing forms, introducing new competitive
structures and limiting spending, the plan has effective ways of cutting
waste and reducing costs.

The President's health care plan is not perfect but it is fair. It will
need some fine-tuning in the legislative process. For example, citizen
and consumer participation must be included in all aspects of the plan's
ia^plementation to ensure that government-sponsored programs are
responsive to people's needs.

The administration of the health care system must be a process in which
citizens can express their views and participate. We believe that state
and federal programs, and especially the health alliances, that will be
created as the result of health cere reform should follow the federal
policy of open government, including open meetings, full access to
information, open regulatory processes, adequate comment periods, and
other protections tc make sure that citizens are Involved and aware.

The health system must also be responsive to the needs and perspectives
of people as consumers. We believe that health alliances should, as
stated in the President's plan, disseminate information to consumers
regarding quality and access; prepare comparative reports on the quality
of health plans, providers and practitioners; and conduct education
programs to assist consumers in choosing health plans. We support the
provisions for including consumer representatives at many levels of the
President's plan.

In short, we believe the President's plan is an effective blueprint for
health care reform and we urge its speedy consideration.

I would like to take a few minutes to outline the League's views on
several key points that we believe should be included in any health care
reform plan.

First, a reform plan must achieve xinlversal coverage for all U.S.
residents. Reform must establish a basic level of quality health care
regardless of ability to pay.

Universal access Is the basic test of the humanity of our health care
system. The most advanced nation on earth must be able to assure
adequate health care for all.

Universal access Is also Important as & cost control measute. Under the
present Byetem, cost shifting occurs when uncompensated care for the
un^i^ured Is parsed along to the rest of us In the form of higher
prices. In addition. lUnesses left untreated because people don't have
Insurance are much more expensive to cure when someone finally goes to
the emergency room.

How can universal coverage be achieved? The League favors a national
health Insurance plan financed through general taxes — a so-called
"single-payer" plan. We also believe that an "employer-mandate" system
Is acceptable.

Under an employer-mandate system, employers would be required to pay
most of the costs of purchasing health care coverage for their employees
and their families, who would pay the balance. The government would pay
for those who are not In the work force, ifhlle small businesses would
receive subsidies to assist them In providing coverage.

Because It builds on the existing system, under which most people get
health Insurance coverage through their family's employment, an
employer-mandate system can achieve universal access without large
disruption of the health care delivery system. In addition, because
health care Is a traditional form of compensation, and because It
assures a healthy and productive workforce. It Is appropriate for
employers to continue to pay for health care.

Some have proposed that universal access be accomplished by requiring
Individuals to purchase health Insurance. Often these proposals also
provide tax Incentives to encourage participation. Because such a
system Is very difficult to enforce, and because the type of coverage In
such proposals Is usually very spartan, this method can fall short of
providing universal access to quality care. The League does not support
such proposals.

Another Important access Issue Is the problem of underserved areas. Too
often, quality health services are not available in rural areas or Inner
cities. It Is critical that the United States allocate resources to
underserved areas and train health care professionals in needed fields.

The second crucial issue for any health care reform plan Is the type of
coverage that is included. The coverage must be broad and Inclusive
enough to protect people's health. But coverage must be limited to
ensure that costs are not excessive. Striking the proper balance is one
of the most difficult Issues in the health reform debate.

The League of Women Voters believes that a basic package of quality
services should Include the prevention of disease, health promotion and
education, primary care (including prenatal and reproductive health
services), acute care, long-term care and mental health care. Dental,
vision and hearing care are also important but lower in priority.

Primary care, the general "wellness" care reccdved by a patient, is
critical. Currently, the lack of primary and preventive care often
results in serious illness and expensive medical intervention. By
providing care such as prenatal care to all pregnant women and routine
vaccinations to all children, we can save lives and money.

Acute care, the treatment of illnesses or injuries, is also critical.
Providing this care to all U.S. residents would reduce cost shifting and
help control costs, in addition to ensuring better health for all.

As Americans live longer, the need for long-term care Is a reality for
almost every family. Long-term care for persons who are chronically 111
or mentally or physically disabled is also essential. Our current
Infrastructure for long-term care, however, is lacking. We need to look
for new ways to deal with these problems, such as care In the home, that
are not exceedingly expensive. In any case, a start must be made on
long-term care.

269

A start must also be made on mental health care. It Is abundantly clear
that mental health care pays real dividends In lives saved. In pain
relieved. In families assisted and in workers helped to remain
productive.

I would like to say a few words about abortion bervlces. We believe
that abortion services must be Included in the standard benefits
package, just like any other safe, effective and legal medical
procedure. A woman and her doctor must make the difficult decisions
about reproductive health care — Congress has nc business making those
decisions. Generations of women and men have fought to ensure access to
safe abortion services. Such services are now included in many women's
existing health plans. Make no mistake, removing abortion services from
the benefits package would take away something fundamental from women
across the country.

The third key issue In health care reform is cost control. A simple
look at the numbers Illustrates the problem. Between 198C and 1991, the
total amount spent on health care per family more than doubled. Without
strong action, it will more than double again by the year 2000.
America's families can't afford this and neither can America's
businesses.

The League believes it is absolutely essential to achieve a reasonable
total national expenditure level for health care. In order to control
costs, legislation to reform the health care system should include
specific cost-cutting measures such as:

o the reduction of administrative costs;
o regional planning for the allocation of personnel,
facilities and

equipment ;
c the establishment of maximum levels of reimbursement to

providers;
malpractice reform;
o the use of managed care;
o utilization review of treatment;
o mandatory second opinions before surgery or extensive

treatment;

and
consumer accountability through deductibles and copayments.

Such techniques hold real promise for controlling costs. According to
some estimates, at least $130 billion a year is spent on unnecessary
care. Managed care, which is designed to limit inappropriate ot
excessive utilization of health care services, can provide more
efficient and economical delivery of care. Increased consumer
accountability through deductibles end copayments can also help cut
overutlllzatlon.

With 24 cents of every health care dollar going to administrative costs.
It is apparent that administrative procedures must be streamlined,
resulting In substantial savings. In Canada, which uses a single-payer
system, the cost Is 11 cents of every dollar. It is also vitally
Important to reduce duplication of services, facilities and equipment,
such as costly, high-tech diagnostic machines.

In addition to specific cost control techniques, however, health care
reform must include an overall mechanism to ensure that savings add up.
There must be a back-up mechanism to oversee and coordinate coet-cuttlng
efforts. We think that gTohel budgeting can provide that needed
mechanism. National and regional boards comprised of policy makers,
medical professionals, and consumers could set goals or limits for
spending at the national, state and local levels. Governments and
health providers would then operate within these limits. Careful
consideration needs to be given to how global budgeting will operate.
We need to make sure that cost controls ate consistent with quality and
are net arbitrarily Imposed. But the need for such global budgeting Is

270

clear. We believe It should be Included In health care reform
legislation.

The fourth and final key laeue In health care reform is how to ppy for
It. SuEstatitlal aavlngB can be achieved over the current health care
syatem, and these savings should be applied to ensuring that all U.S.
residents have a basic level of quality health care. No doubt a large
part of the debate over the next several months vlll be over the size of
those savings. Whatever the outcome, however, we believe that the goal
of universal access Is worth paying for. That Is why we support
increased taxes to finance a basic level of health care for all,
provided effective cost coitrol strategies are employed.

The League looks at a variety of factors when evaluating the
acceptability of taxes, but we are particularly concerned that the
overall health care reform package is fair, equitable and progressive.
The League would support a general Income tax increase to finance
national health care reform and could support restrictions on the
deductibility of health care benefits. We strongly oppose a value added
tax (VAT) or national sales tax. This Is a highly regressive tax and
would unfairly burden low and middle-Income Americans.

The League does support Increases In so-called "sin taxes" on such
products as cigarettes and alcohol as part of a reform package that
encourages Americans to lead healthy lifestyles. Such taxes discourage
the excessive use of these harmful products and will actually serve as
"prevenfve medicine."

In summary, the League of Women Voters calls on Congress to enact
national health care reform that provides for universal access to
quality health care and for stringent cost control measures.

Health care reform will need bipartisan support. The League Is
encouraged that many of the goals for reform are now shared by key
members of both political parties on Capitol Hill. Congress must not
lose sight of the costs of inaction on this critical issue. Americans
cannot afford a protracted political battle on national health care
reform. There will be no perfect solution to this crisis. Not
everyone will get everything they want. But, for once, everyone has
the posElbility of getting what they need . This, in itself, will be
a giant step forward.

We need a viable plan that gives all Americans a more humane health care
system. The President's plan is an effective blueprint for reform.

Congress must now seize the momentum. There can be no turning back. It
is time to forge ahead and enact comprehensive health care reform.

271

Chairman Stark. Thank you.

It is no secret, as much as I would protest my impartiahty, that
given a free choice to be king for a day, I would prefer a single-
payer approach that resembles Medicare for all. But there are oth-
ers who believe that we should retain more of the current system
and, indeed, allow health plans to compete one with the other.

And I assume that, to get a bill that will have universal cov-
erage, we are going to have to compromise to get the votes.

So if a so-called competitive model will prevail, would the wit-
nesses support an effort to allow Medicare in its present form to
compete with the other health plans, allowing individuals, busi-
nesses, groups, the option to buy into a Medicare-type system, the
theory being that under Medicare today individuals can choose any
physicians?

They would have the benefit of Medicare's cost containment and
savings from overhead, or they could choose to enroll in private
plans like Kaiser, Prudential, Blue Cross, or anybody else.

Would you like to start oft, Gail, and just go down the line and
tell me how you would feel about that.

Ms. Shearer. While our organization doesn't have an official po-
sition, my initial reaction is very positive for several reasons.

The Medicare program has been very successful in achieving ex-
tremely low administrative costs, on the order of 2 percent of its
total budget.

The other key advantage that this type of option has, is that a
public program, a Medicare-type of program, is accountable to the
public. Whereas the health plans outlined in the Clinton bill are
accountable to their shareholders.

And so the fact that this part of the program would be account-
able to consumers, to the public, is very appealing.

Chairman Stark. Thank you.

Mr. DoRN. So much depends on the details, it is difficult to give
you an answer. And, obviously, it would be good to have a chance
to think. But I think that has an enormous amount of potential.

Chairman Stark. Mr. Kirsch.

Mr. Kirsch. Since we are going to be saying that every health
alliance has to have a fee-for-service plan, instead of creating new
ones, why not just do Medicare and at least be sure you integrate
the fee-for-service.

Chairman Stark. I hadn't intended it to be that restrictive. I just
want to make sure that it is there.

Mr. Kirsch. That way you would have a fee-for-service system
with a lot of providers, a lot of people, you don't have to worry
about getting a restrictive fee-for-service system.

And then you also want to be sure that Medicare would have
benefit-risk adjustments and would have out-of-pocket limits. But
Medicare can compete with the alliance systems. Let's not dis-
advantage it.

Chairman Stark. It would presume that the minimum benefit,
whatever that is going to be

Mr. Kirsch. The same as other plans. More than Medicare

Chairman Stark. I didn't want to talk to the last panel about
the new notch that we would create if we had a different benefit
for Medicare. But this Congressman is not going to create a whole

272

new generation of notchers. I mean that — my life is complicated
enough, thank you.

Ms. Cain.

Ms. Cain. Well, we certainly would be willing to look at the op-
tion. Our concern is that we get everybody covered and that we
keep costs low. So, those would be our concerns.

Chairman Stark. OK.

Ms. Shearer, the plan proposes to regulate any private supple-
mental market much as we did for Medicare supplements. I know
that you and your organization have been in the forefront of re-
viewing insurance programs and its regulation and so forth.

One thing that is interestingly absent in the President's plan is
that there was no regulation of so-called dread disease or crap
shoot policies of indemnity style.

I think you believe they should be banned. But short of that,
what minimum Federal standards would you recommend for those
policies? And why do you think they must be regulated?

Ms. Shkai^kr. Chairman Stark, we believe there is no role for ei-
ther hospital indemnity policies or dread disease policies in a re-
formed health care system.

We have trouble with them in the system that we have today.
These tend to be very, very low-value policies. They would rep-
resent a total wasted — unnecessary expense in a reformed system
where we are trying to get the rein in on costs.

With regard to the supplemental market — and this is an area
where this committee has done so much to reform the medigap
market in particular — the draft plan has some provisions for set-
ting up standard policies for cost sharing supplemental policies.

We believe that the plan should go further and that the supple-
mental policies that cover benefits not in the standard benefit
package — that there should be standard packages available for that
part of the market as well, and we hope that this subcommittee
would take the lead on that type of a modification.

Chairman Stai^. Recognizing that often in the case of motor-
cycle helmets or even, indeed. State lotteries, that it is beyond leg-
islators to protect the public from themselves, and that there are
some things that the public is just going to do — smoke, gamble,
whatever they choose — would you have any objection to our inte-
grating those types of policies into State lotteries, to have slightly
worse odds than State lotteries to help you, but as long as people
are going to do them, \^e would let the States benefit from the egre-
gious profits that are made and they could, then, use the benefits
for other charitable things?

Would you say that that might be a good way to deal with the
public's propensity to gamble in this area?

Ms. SHKAiiKR. Well, I think that it would help to educate con-
sumers, that what they are entering is a lottery-type of arrange-
ment when they buy one of these policies. It would certainly help
from a consumer education point of view. Whether the regulatory
framework really works, I am not prepared to comment on that.

But another option to consider would be applying a 90 percent
loss ratio to these policies, which would have a major impact on
their ability to sell them.

273

Chairman Stark. Someday we have to do what we did in our
sixth grade or eighth grade math class. When we learned about
statistics, we had a slot machine which had recently been outlawed
in Wisconsin. And they had a rule in Wisconsin, God bless them,
that the slot machine had to pay back 95 percent. And it did.

But you really, then, found out what a profitable sort of thing
those slot machines are. So I guess what you are suggesting, if we
let these guys have 90 percent, they ought to make at least as
much money as the slot machines in Las Vegas.

Ms. SHKAitKR. Let me repeat: It is our clear preference that
Americans not waste billions of dollars on something they don't
need.

Chairman Stark. Mr. Thomas.

Mr. Thomas. Mr. Chairman, the gentleman from Iowa has asked
me to ask unanimous consent that we place in the record a cover
letter to the letter he discussed earlier which had no letterhead but
essentially trashed the Cooper-Grandy plan.

What he wants entered into the record by unanimous consent is,
in fact, the cover letter indicating who it was that tried to make
themselves appear to be a broad-based group.

And he asks unanimous consent.

Chairman Stark. I, without objection, make it part of the record.
Although, I have a hunch that Citizens Action probably had as
much to do with that letter as anybody else.

Mr. Kirsch, would you

Mr. KiitscH. My national staff says we did start the ball rolling
on it.

Chairman Stark. I think we would have many groups step for-
ward and claim part of the parentage of that letter.

So with that admonition, by all means, make it part of the
record.

[The information follows:]

274

HEALTH CARE: DEFEATING THE COMING CUNTON-COOPER COMPROMISE

"[Y]ou should realize our bills are very similar. The White House bill and my bill have a lot in common,
and we're very proud of that.... I want the White House to win." Rep. Jim Cooper (February 4, 1994)

"lUn some ways I think that Jim Cooper is being extremely helpful to the process, extremely helpful to
the process." Sen. Jay Rockefeller (February 4, 1994)

"illn hrr^rl Offline the Clinton and Cooper proposal: .-"•" '^o'" pUke than either side at times finds it
CO. ivenient to scknc A/ledge. ' = he Washington Pc^l (February 7, 1 994)

Jim Cooper, Jay Rockefeller, and the Washington Post know something that many people in Washington
(including, we fear, many Republicans) do not: that while the Clinton Administration's health care legis-
lation may be in trouble, its project of reform by sweeping government dictat is, unfortunately, still alive.

The new conventional Washington wisdom about health care has it that the Clinton plan is in trouble,
its current momentum stalled and its future prospects threatened by the emergence of Representative
Jim Cooper's "moderate alternative." This week's Time goes so far as to suggest that Qinton's plan might
be "DOA." Evidence for this theory is deceptively obvious. The president has been on the defensive
since before his State of the Union message, which included a veto threat he apparently deemed neces-
sary to protect legislation he had introduced just two months earlier. That speech failed to move poll
numbers as intended; public support for the plan remains below levek recorded early last fall. And there
have been signs of White House fear and weakness ever since.

Concerned about potential political support for less radical reform than his, the President has offered
surprising (if ultimately unsuccessful) concessions in a bid for support by the National Covemors
Association. His aides have responded somewhat hysterically to a series of critical television ads - and
to an article in TTie New Republic that convincingly detailed their plan's likely ill effect on American
medical services. Tuesday's Congressional Budget Office pronouncement raises further serious ques-
tions about the plan's financing and budget effect. And last week saw a new rush of business objections
to the Administration's health care proposal: tough Congressional testimony by the Chamber of
Commerce, a declaration of opposition by the National Association of Manufacturers, and an outright
endorsement of Cooper by the Business Roundtable.

The Cunton-Cooper Phony War. It's true that the Clinton health care legislation, as written, is made
weaker by the fresh strength of the Cooper bill. And the harsh reaction to this development by the
White House and its allies seems at first glance to support the notion that large ideas are at issue in a
Qinton/Cooper tug of war. But large ideas are not in fact at issue; Clinton and Cooper are instead, as
the Congressman correctly claims, 'first cousins in this debate and ... hoping for a family reunion thb
year." Both Democratic proposab involve a radical federal regulatory rean^ngement of the financing
and delivery of American medical services. In this respect they constitute not two political-positions on
health care, but only one. Clinton's health plan is by no means 'dead on arrival.'

The fact that Clinton and Cooper now thoroughly dominate the Washington health care debate, and
thus threaten permanently to circumscribe its acceptable parameters, should alarm Republicans.
Neither bill is compatible with conservative principle, and Republicans therefore have no business
cheering for either side of the Clinton/Cooper controversy - much less 'participating constnjctively" in
its resolution, despite the disingenuous advice we now receive from editorialists. Any conceivable

275

rlbn-Cooper compromise legislation would represent an unprecedented government encroachment
tfie authority of individual citizens to make basic decisions about their daily lives, in this case about
their very health. Republicans ought not be reluctant to defend such individual rights and oppose a
Clinton-Cooper compromise that threatens them.

The health care debate is at a watershed. The Cooper bill is currently ascendant not because managed
competition" has any broad-based, intrinsic appeal, but rather, we suspect, because its Congressional
and business supporters see no other politically realistic vehicle with which to register their opposition to
Clinton Republicans must now make clear that Cooper is n?* ^ meaningful departure from the Clinton
vision, and must make a principled case for the real alternative soiution to America's healthi care prob-
lems: sensible, straightforward reforms that would make insurance more stable and affordable. Those
reforms have enjoyed bipartisan support in the past; they can earn such support again this year.

Unless we are prepared to oppose Qinton-Cooper vigorously and propose our own reforms intelligent-
ly, the ultimate success of Clintonism, broadly understood, will be virtually certain. The White House
can meet Jim Cooper well more than half way in the public and private compromise negotiations now
underway, and the president will still be able to sign the terrible result into law.

Understanding the Cooper Bill. Managed competition, the core of the Cooper bill, shares with the
president's proposal the vision of a government-directed remaking of American health care delivery and
financing. Though it comes in free-market guise, the Cooper bill would undo the medical system we
now take for granted - just as radically and completely as would the Clinton plan.

True, Cooper avoids a mandate that employers pay for their employees' health care. That has been its
central attraction for business groups. But a closer examination of the bill reveals other ways in which
employers would be drawn into a web of state-administered health care machinery. Firms with fewer
than 100 employees (about 93 percent of all businesses), for example, would be required to register
with regional Health Plan Purchasing Cooperatives, forward information about all their full- and part-
time employees, and deduct from paychecks the cost of health care premiums, whether or not the firms
were providing health care coverage.

Each of these purchasing cooperatives would be required to make available "accountable health plans"
that offer a standard set of benefits determined by a vote of Congress. Proponents of the Cooper bill
point out, correctly, that under their plan consumers might still choose plans whose benefits exceed the
government's established standards. But the Cooper bill is essentially designed to limit individual choice
by pushing consumers into the lowest-priced health plan in their region. Through the introduction of a
tax deduction cap, both individuals and employers would be permitted to deduct only the cost of the
lowest priced plan in their region. Anything beyond that would be subject to the top corporate rate.
Businesses that today offer their employees generous health plans would effectively be forced either to
accept the government's more austere benefit limits or face stiff economic penalties.

This is a remarkably coercive use of the tax code. The federal government would first decide what type
of health insurance should be in a employee's benefit package, and then, in effect, penalize all those
who choose what the Cooper bill deems "excess" health coverage. Cost savings would presumably
emerge from the competition among these minimum benefit plans to become the lowest bidder in any
given region. The Cooper bill advances these measures in the name of cost containment But they are
tantamount to an arbitrary government restriction on how much money goes into the health system. To
retain the tax deductible status of the health plan under which they work, doctors, nurses, and hospital
administrators would be driven primarily by budget priorities. The ability of patients to obtain high qual-
ity service and a full range of treatment options would invariably be compromised.

276

In most regions, the only plans able to meet government-set standards for certification as "accountable
health plans" would be health maintenance organizations (HMOs). Representative Cooper's candor on
this point has been widely overlooked. "My guess," he has said, "is that fee-for-service medicine will be
discouraged and mostly die out* Alain Enthoven, one of the authors of the managed competition
model, has made the same prediction: "We doubt that Iprivate-practice doctors] would generally be
compatible with economic efficiency." Seeing a specialist when you like, seeking a second opinion,
choosing your own family physician -- all these things would be as rare under Cooper as under Clinton.

Surviving health plans would be rurtner hampered by th. Cooper requirement that no plan charge
enrollees different rates for any reason other than age. While ostensibly designed to guarantee access to
health insurance, this Cooper veisibn of "community rating" would effectively prevent a plan from offer-
ing different premiums based 6h health status or medical history. Under Cooper's system, in other
words, the individual who quits smoking or takes preventive health measures would be treated the
same, for insurance purposes, as a smoker or someone with a debilitating disease. And both would like-
ly wind up in the same "lowest price" accountable health plan.

For the health consumer in America, life under the Cooper plan would look very much as it would
under the president's: standardized medicine, impersonal systems of care, and hospitals and doctors
judged by economic efficiency standards. 'Cost containment" would become the mantra of American
medicine, and all incentives in the system would be geared toward cutting corners and trimming ser-
vice. Doctors operating in an accountable health plan would be required to report on procedures, treat-
ments, outcomes, patient background, expenses and other "necessary" medical information; health
plans would withhold payment to any doctor who does not provide such requested data. The number
of specialists trained each year would be decided and alloted by a panel of government experts.

Above everything, the Cooper system shares the president's fixation with a complex architecture of
national health care bureaucracy that regulates, monitors, and coordinates virtually every aspect of the
doctor-patient relationship. Like the president, Cooper would establish Health Cooperative Boards in
each region. He would also create a Health Plan Standards Board to establish standarcis for every health
plan; an Agency for Qinical Evaluations to oversee federal medical research; and a Benefits, Evaluation,
and Data Standards Board to manage a national health data system. The entire structure would be gov-
erned by a Health Care Standards Commission of five presidential appointees - an independent agency
that would function as a Supreme Court of Health. While steps may be taken to shield them, all these
organizations would be subject to immense pressure from politicians, interests groups, and professional
health industry lobbyists. Vital decisions about experimental drugs or even routine medical procedures
would become political questions. The quality of treatment patients receive, the options available to
them, and the advancement of medical practice would all become tertiary concerns.

The Republican Responsibility. The Clinton health care plan and its Cooper 'cousin' are together a gigan-
tic leftward social policy gamble by the Democrats, one that should be impossible to win given every-
thing the United States has learned over the past 25 years about the failures of big-government liberal-
ism. The White House had no right to expect anything but fierce opposition to the proposal - from
American business, which has a legitimate and necessary interest in protecting itself from government,
and from Republicans, who have a comparable but even more important interest in defending both pri-
vate American relationships (like that between patient and doctor) and those non-governmental institu-
tions that remain basically sound and successful (our health care system most definitely among them).
But such an opposition has not emerged, not so far at least And if it doesn't, soon, the Clinton gamble
may well pay off - despite the fact that it pursues a misguided answer to a misconceived problem, and
does so from premises a justly skeptical America has long since rejected.

277

For its part, the Republican Party in Congress has limited options. It can remain fractured, with various
Members attached to various proposals, and hope tor the best But the best won't happen; Clinton-
Cooper will pass, and the Republican Party will have been passively complicit in its passage. The Party
might instead decide to play the inside legislative game of Qinton-Cooper-Chafee, working the subcom-
mittee hearings and the committee markups, and trying somehow to influence the final bill on the mar-
gins. Clinton-Cooper passes that way, too, and Republicans will be actively implicated.

There are those Republicans prepared to argue that such a result invoK'es no compromise of conviction.
DavidOurfc.iberger, for example. Cooper's only Republicai. «)spo.i5or in the Senate and a cosponsor
also of the very similar Chafee b^l, says that "Republicans already have a winning strategy and that strat-
egy is managed competition," which he calls a 'comprehensive vision" consistent with 'Republican prin-
ciples." Senator Durenbetger is Wrong. Managed competition is not a Republican principle. It is mas-
sive social regulation, precisely the kind of thing the Republican Party should exist to oppose, and for
Republicans to acquiesce or participate in its enactment would bring us no credit, and much shame.

The only honorable and realistically successful path for Republicans, then, is that outlined by Senator
Dole in his calm and intelligent State of the Union response, and restated last Wednesday in a speech
by RNC chairman Haley Barbour advancing specific solutions to the problems of health care coverage,
a^ordability, and cost that most Americans agree exist while at the same time defending our medical
system's unparalleled benefits ~ and making clear that those benefits are under attack by the White
House. Republicans should not be deterred from this position, as some appear to have been in recent
days, by press criticism and isolated polling statistics. The criticism comes from advocates of the
ainton-Cooper position. And public opinion, which political parties are formed to help shape and
change, is already overwhelmingly hostile to any health care reform that would, as Qinton-Cooper will,
limit the availability of medical services. Senator Dole and Chairman Barbour are making a correct
argument in principle. And a winnable one.

A Stark Choice. There is already widespread public nervousness over the Clinton-Cooper program.
New York Representative Charles Schumer, for example, reflecting on his dip home during the last Hill
recess, expressed this fear quite starkly to ITie New York Times: "How are we going to explain to a
majority of my constituents, who have worked hard and invested in a Ihealthj plan that they're not terri-
bly unhappy with, that they should jump into the abyss of the unknown?" He was talking about the
Administration's legislation, of course, but the same question can and should be asked of Cooper. And
when it is. Cooper's supporters - many of whom have joined hb bill for purely tactical, anti-Clinton
purposes - will be eager for an alternative to the coming Clinton-Cooper compromise.

It is the Republican Party's duty to speak for Charies Sdiumer's Brooklyn constituents and the silent
majority of Americans who want reform but whose medical care would be badly damaged by the radi-
cal experimentation of the CDnton-Cooper health care proposak. Republicans must reframe the health
care debate and offer these Americans a dear choice: a crisis-driven Clinton-Cooper "jump into the
abyss," on the one hand, or real solutions to existing problems that give individual citizens, not govem-
ment, more conb-ol over their health care. What is needed b not yet another 'Republican plan";
instead, the Republican Hill leadership should put forward a proposal that can be the basb of effective
bipartisan legislation.

The political damage recently sustained by the Clinton health care plan suggests that a Ginton-Cooper
comprombe will be forced on the White House sooner rather than later. It would be useful to get the
principled alternative - a proposal that might eventually become the "Moynihan-Dole" bill, for example
- on the table just as fast Thb is a sound strategy for Republicans, and for the country.

278

Mr. Thomas. Mr. Chairman, I am an instructed delegate.

Chairman Stark. You are recognized, then, for your own creative
inquiry.

Mr. Thomas. Thank you.

Ms. Shearer, you demand a number of things in terms of your
proposal. One of the things the President has done from the very
beginning is demand that if anybody wants to play the game, they
have got to be as accurate as possible on the costs.

If, in fact, the Clinton plan does the things that you do and the
deadlines that you seem to require them to be done, do you know
how much your plan would cost?

Ms. Shkarer. Well, the — I don't really understand exactly what
your question is, whether — with Consumers Union's modifica-
tions — is that what you are asking?

Mr. Thomas. We can begin with your testimony and go page by
page. You outline what you are doing in terms of requiring certain
things be done in a certain way. For example, you ask for universal
coverage by 1997, the President initially indicated that he wanted
it by 1996. I don't know why you picked that date. Some people
have some speculation as to why it was 1996. But he got beaten
back, and a number of other folks in the Cabinet, for example, Sec-
retary of Treasury, Director of Office of Management and Budget,
talked about how time was money and if you do it immediately, it
costs a lot. If you do it over a period of time, it costs less.

You pick a particular date and insist it occur by then. You indi-
cate exactly what needs to be done in terms of the regulation of the
prescription drug prices, on and on and on in terms of specifying
very particular things that need to be done.

Do you have any indication of what, if in fact your program was
the one that was implemented, it would cost, more or less, than the
President's estimates?

Ms. Shearkr. There are some estimates from the Congressional
Budget Office for last year's single-payer bill, which estimated that
by the year 2000, total health care spending would decrease by
$150 billion.

And that is — that is the best estimate that we have of the impact
on total health care costs, that the ideal system would have.

Now, my testimony today did not outline specifics, for example,
of the long-term care benefit. I can't give you a Consumers Union
proposal. But we strongly support H.R. 1200, and the order of mag-
nitude that we are talking about is $150 billion reduction in health
care costs by the year 2000.

Mr. Thomas. Well, then let me ask the question in another way
so that we can get at what I consider to be an inherent internal
conflict. I need to know whether you agree with it or not.

Do you believe that the goal of universal coverage and cost con-
tainment are at odds with each other?

Ms. Shkai^kr. No, I do not. I believe that the important thing to
consider is not the amount of spending that we have in the private
health care system, it is not — the important figure to focus on is
total health care spending.

When people don't have insurance, it doesn't mean that they get
no health care. It means that their health care is coming out-of-

279

pocket in a very regressive way. And we are interested in the total
health care costs.

Mr. Thomas. We understand all of that. But even Dr. Reischauer
of the CBO, who has to control the numbers, has said repeatedly
that you cannot have a plan as outlined by the Clinton administra-
tion which promises universal coverage and cost containment for
the amount that he indicates. You can't do both.

If you are going to have universal coverage, it is going to cost
more. You can't save money in the system and cover more people.

Ms. Shearer. Well, again, I think it is important we use

Mr. Thomas. There are more or's in there than there are and's.

Ms. Shearer. We think the important standard here is a single-
payer bill, and that bill is able to achieve universality and cost con-
tainment in a way that no other bill on the table appears to.

Mr. Thomas. I understand that. But if you want to hang on the
position, as the chairman has clearly indicated, you are not going
to be a player in this initial round of trying to determine how we
change the health care system.

And if that is going to be your position, fine. Then I understand
and know how I need to deal with you. That is, you're not going
to be a player.

Ms. Shearer. And if I could just modify my answer. I do want
you to understand that we believe that the President has given us
a plan that we can work with, and we will work to improve it and
bring it closer to the single-payer ideal.

Mr. Thomas. Mr. Dorn, the same things in terms of you with
terms "sweet and sour," I don't care what you do, just leave the
MSG out.

The problem is, as you go through, everything that you have
talked about, which may be laudable, costs money. The price tag
on yours, have you costed yours out? And the answer is, no.

And let me tell you, I have a lot of sympathy with you, because,
as we focus on the delivery of health care or the nondelivery of
health care to the poor, the gentlewoman from Connecticut and I
have in common concerns about the poor. She has urban, I have
rural poor. There are some commonalities. There are also some sig-
nificant differences in the way in which we deal with it.

And that, at some point, we are talking about trying to provide
something, rather than making sure that there is uniformity across
the board. Your model is a laudable one. Let me tell you, when you
run it through the cost factor, it is out of sight.

Mr. Dorn. Well, Congressman, in terms of the issue of cost, I
think in terms of the four points I was making, the last two are
ones that involve dollars. The issue of cost sharing, where we are
arguing that cost sharing for low-income people should be con-
trolled, and the issue of supplemental benefits, as are currently
being provided under Medicaid.

And in terms of cost sharing, relatively little research has fo-
cused specifically on the issue of primary care copay as applied to
an indigent population, which is the issue that I am raising, not
middle class folks, an indigent population.

There was one important study on this done in 1978 by the
RAND Corp. which took a look at what happened in California
when, in 1972, a $1 copay was applied to the combination of the

280

first two physician visits per month. They found that, in fact, that
increased systemic costs. That physician visits went down by 8 per-
cent. Inpatient hospital costs went up by 17 percent, and overall
systemic costs went up by 3 to 8 percent.

So our contention is that the best way to — one of the ways to con-
trol costs is make sure that low-income people get primary care
early on, and don't go to hospital emergency rooms. And if you
want to encourage that result, low copays will save you money.

Mr. Thomas. And part of the problem is that we have a number
of studies that prove a number of things, some of them diamet-
rically opposed. And all of us are scraping for realistic numbers and
statistics and figures to try to make sure that, as we make these
changes, we understand what we are doing.

To me, one of the biggest problems is the fact that we are dealing
with a product area in which, Ms. Shearer you probably agree with
this — that we have probably the most uninformed consumer of vir-
tually any purchase that we make. The job of trying to get that
consumer more informed is fundamental. Yes, you have people who
fall out of the system; yes, you have people who can't afford the
opening bid, whatever the opening bid is.

But the primary problem right now is that the massive number
of Americans who are covered may be concerned about whether
they keep the coverage. Most people are generally satisfied with
what they have. The problem is they have no idea what it costs to
deliver what they have now. That is going to have to be a major
component in whatever we do, and that is educating the folks we
have.

And, Ms. Cain, I am a little concerned with your testimony. I will
take you in the order that the chairman recognized you.

So very quickly, Mr. Kirsch, you know you talk to the State folk
and they are more than willing to set up, run, control, and dispense
the money. They only want the Feds to pay for it.

If you are looking for some kind of a uniform quality, you really
can't turn the States loose. And what do you do with these States
who decide maybe they don't want a single-payer involvement, such
as Maryland wants? Some States have clearly indicated to us they
don't want it. Surprisingly one of these States is Wisconsin.

You would think, from a political profile and a past history, that
would be one they would tend to look for. The problem is, if it is
a Federal problem, it needs a Federal solution. And we are going
to be wrestling with all of that.

But interestingly, on page 4 of your testimony, where you offer
a very simple solution to what is a very vexing problem for us, and
that is where you talk about making premiums affordable under
the Clinton plan. It just struck me that your approach was not only
not novel, it isn't something that is supported in a number of areas
in the world today where it was at one time.

What your plan basically says is that what you want in terms
of payments are from each according to their means, and in terms
of delivering the health care system, to each according to their
need, devoutly to be wished by all of us. But somebody's got to pay
the piper. And that is going to be the most difficult thing to do.

Ms. Cain, you know, I appreciate your cataclysmic outline of the
problem. It is very dramatically delivered. I am telling you, nobody

281

that I have talked to, including the President, believes that the sys-
tem is as broke as you say it is. There are a number of areas that
need fixing. There are a number of areas of adjustments. But even
in the President's plan, he keeps virtually everything we have and
provides an overarching bureaucracy that runs it in the way that
he thinks it should be run.

Where do you believe the President and almost all the experts
are wrong in terms of indicating that the system is failing, that it
has completely run amok, and that we need to fundamentally re-
build it?

Because if you believe that, as your testimony indicates, then you
are not very supportive of the President's plan because he doesn't
bring about a fundamental wholesale restructuring.

Ms. Cain. What we mean by wholesale restructuring and fun-
damental changes is that we must have universal access, which
means that the 37 million Americans who currently have no cov-
erage will be covered. To us that is a fundamental, serious flaw.

Mr. Thomas. But on the other side of the coin, more than 200
million Americans are covered.

Ms. Cain. We also believe that cost

Mr. Thomas. Isn't that true? If 37 million Americans aren't cov-
ered, how many are covered?

Ms. Cain. That debate can be

Mr. Thomas. It is not a debate. It is a math problem.

How many Americans are there? 280 million. How many are not
covered? 37 million. What is left over? The vast majority are cov-
ered.

Ms. Cain. We are concerned with the humaneness of a system
that will leave people out and base health care on ability to pay
as opposed to other factors. We would like to have the system
changed. The crisis to us is that it must be changed; and this is
a major step to include these 37 million people.

We also believe that the skyrocketing cost of health care — we
have heard from many of our members and other people who have
testified across the country about their inability to get health in-
surance — even from their employers and from the employers who
say they want to provide health care but aren't able to. We see that
continuing to change so that cost control mechanisms will indeed
help.

Our members felt it was a crisis. It was a crisis based on their
personal individual experiences as well as the experience of others.
Maybe our perception is different than others.

However, we do feel that there are monumental problems. And
we don't think that any reform that does not guarantee coverage
or that does not include cost containment is real reform.

Mr. Thomas. I understand that. That isn't what I got from your
testimony. Your testimony was that the system is a complete fail-
ure and it needs fundamental reform. I will tell you, when you
begin pushing not the 37 million who don't have it — because most
of the public understands that the Clinton plan helps people who
don't have it and who are basically poor. That is a positive. Every-
body supports that.

But you have got to deal from a political point of view with all
those people who do have something. You have got to eventually

282

bump into the question of choice and quahty when you begin to
talk about a fundamental restructuring. It is just that very easy to
paint it in cataclysmic terms and make ringing statements as
though we are dealing with a revolution. In fact, what we are doing
is trying to, without doing any new harm, make adjustments in a
system that is $1 trillion of this economy. The worst possible thing
would be that the majority of people who already have coverage
and are basically pleased with it, wind up saying that I am paying
more and getting less. That is unacceptable because then you have
a real political problem on your hands.

We are going to try to work together on it. I just think if every-
body lowers the flame in terms of what the problem is and how to
solve it, we will have a better chance of coming together, instead
of deciding that it is all black or all white and if you don't do it
my way, then you are not doing it the right way.

And to that point, Ms. Cain, on page 4 of your testimony, you
talk about the inclusion of reproductive rights, especially abortion
services in that basic health care package.

The question I asked the other panel, I will ask you: If it isn't
included in the package, does this mean you oppose the package?
How central is it to your support of the package?

Ms. Caen. Removal of reproductive services would be very
serious

Mr. Thomas. Reproductive services I think we can keep in there
in terms of counseling and other things. I am talking about the
funding of abortions, extending to voluntary abortions, as part of
the basic package.

Ms. Cain. The basic package includes abortion services. Their re-
moval would be a serious consideration for us and we would have
to give it serious consideration as to whether or not we would con-
tinue to support the plan.

Mr. Thomas. So you wouldn't oppose it — so you wouldn't oppose
it automatically?

Ms. Cain. We would see it as a step backward. Currently, insur-
ance companies provide abortion services, so if we are not going to
continue to provide them and cover them, it would be a serious
step backward in our mind, and we would have to take a serious
look at what kind of proposals we would support without abortion
services.

Mr. Thomas. What did you mean whon you say "insurance pro-
grams offer it"? Certainly there are some who have it, some who
don't. It is determined by the employer-employee relationship.
Sometimes it is included, sometimes it isn't, sometimes for cost rea-
sons, sometimes for choice reasons.

You are saying that it has to be in there mandatorily for every-
body. That is different than your support you just gave in terms
of evidence that it should be there.

Ms. Cain. We support its inclusion, and we will do everything we
can to see that it is included in any package.

Mr. Thomas. If it is a rider, it is going to be a relatively cheap
rider. From a political point of view including it, are you willing to
risk losing most of what you indicated you think absolutely needs
to be done in ter ^s of fixing this crisis facing America? If you don't

283

have the abortion services in there, will you fundamentally re-
evaluate this otherwise fundamental restructuring of the system?

See, I am trying to get a feel for how critical it is to you, and
you are telling me it is very critical.

Ms. Cain. Yes, sir.

Mr. Thomas. I am trying to tell you about that from a political
point of view, it probably isn't worth it in accomplishing 99.5 per-
cent of everything else you said absolutely is necessary for the fu-
ture of America, just from a political point of view.

Thank you.

Chairman Stark. I hate to risk what I suspect is a record, but
I would not have to be second to anyone in my support of reproduc-
tive choice. But with a very, very sick feeling, not from Mr. Dorn's
gastronomic escapades here, but from the fact that I think my col-
league from California is right. I suspect that later today we are
going to go through an exercise on the floor of the House and add
back restrictions on abortion for the people in the District of Co-
lumbia.

I just guess I ought to put all the groups on warning that I am
going to hate to kill the better with the best. But we may lose for
reasons that have nothing to do with health care reform or any-
thing else, when at some point in this debate somebody is going to
offer a restriction on abortion. And that is going to be an issue
whether or not we have the votes. I just hope that we all can recog-
nize that, isolated as an issue, that politically has nothing to do
with providing health care, and work on those who may vote one
way or the other. I say that it is not the kind of thing I like. But
there is so much else in here that we must do, that is an issue that
I would hate to see people, whose agenda has nothing to do with
health reform, stall this or destroy whatever compromise we could
reach through that.

Mr. Thomas. Mr. Chairman, iust briefly on that. And let me put
the wording in a different form because I left it open-ended.

I would urge everyone not to make that linking statement be-
tween the abortion portion and this overall fundamental reform.
Because to the degree that you do that and your support is contin-
gent upon that, those people who don't share your opinion on all
those other areas are strengthened by dealing with that abortion
provision, which then triggers an enormous negative reaction to ev-
erything else that you have.

And it is a relative risk gain. And I would ask that no one be
absolutist in their positioning of these two issues, because if you
are, you will actually strengthen the hand of the people who are
opposed to what you want.

Chairman Stark. Deal with it in subsequent political campaigns.
There is a way to deal with that, in my opinion at least, separately.

But I do have some more questions for the panel, just very quick-
ly. First, I would ask, three of you, I think, with the exception of
Ms. Cain, that you all have endorsed a single-payer system. And
I think each of the three of you, Mr. Kirsch, Mr. Doman, Ms.
Shearer, referred at least in spirit to Congressman McDermott's
bill.

And so oflen the critics of the single-payer bill will ask what is
it and Canada comes up. These knee jerk reactions. For those of

284

you who advocate Mr. McDermott's bill and H.R. 1200, wouldn't
you say that it is a fair proxy to suggest in this country that Medi-
care comes as close to being a single-payer system as anything we
could describe to people?

Is that a fair characterization of a good single-payer system?

Ms. Shearer. Yes. If I could start, Chairman Stark, yes, I think
that the debate would actually benefit from more discussion of
Medicare, which is a very popular program among our senior citi-
zens.

The one key thing that varies between Medicare and H.R. 1200
is the extent of deductibles and coinsurance under the Medicare
program. And I think that is something that

Chairman Stark. It is not perfect, but I am just saying what we
know. And there is a great deal of misinformation about Canada
and the Canadian system, mostly generated by the A.M. A. and oth-
ers who would not like single-payer.

There is some misinformation about Medicare, and I am just try-
ing to frame some examples or anecdotes for people.

And I would ask — Mr. Kirsch is nodding, so I will ask him next —
if you are comfortable with that.

Mr. KmscH. Yes. In fact, I usually don't talk about Canada be-
cause you get into these arguments which really are beside the
point.

As I look at H.R. 1200, in many ways it is an improved version
of Medicare for all, with some very important improvements from
which everybody can benefit. And if you go to a group of senior citi-
zens and say, would you want to trade your Medicare card for pri-
vate insurance, the answer is, uniformly, no.

Chairman Stark. You can't even get a Republican to call Medi-
care socialism.

Ms. Cain, I don't want to get the League of Women Voters into
a position that you say they haven't taken. So let me skip to Mr.
Dorn, whose group I suspect would support a single-payer system.

Mr. DORN. We sure would.

Chairman Stark. Would Medicare be a fair representation of a
type of single-payer system?

Mr. Dorn. Absolutely. And I think its advantage politically is
people have direct experience with it and it is harder to mislead
folks than it is even across this near-Canadian border.

Ms. Cain. Mr. Chairman, if you don't mind, I would like to re-
spond to that.

Chairman Stark. All right. Weigh in here.

Ms. Cain. Our membership does prefer a single-payer system.
The League does find, however, an employer-mandated svstem ac-
ceptable if we are moving toward that goal. So we do preier single-
payer but find employer mandate acceptable.

Chairman Stark. Would you feel in your personal opinion that
Medicare is a type of single-payer system?

If you were saying to somebody, give me an example of what a
single-payer system is like, would you

Ms. Cain. Well, we would support the bill as people have indi-
cated here as an example of a single-payer system.

Chairman Stark. We have had a lot of suggestions that we take
the approach promoted by the Golden Rule Insurance Co., who, ac-

285

cording to their recent ads, Ms. Shearer, has said is the most effi-
cient or one of the most efficient life insurance companies. 1 got to
go back again. I know that can't be true. But that is instinctive.

And there are certain sets of Repubhcan bills that promote
medisave accounts, that is, vou get to save the money and you buy
a catastrophic plan that will cover everything over say $3,000, and
you are on the hook for the first $3,000. And the way we get you
to put away the first $3,000 is to give you a tax exemption or a
tax deduction for this little medical IRA.

Could you quickly, each of you, give me your opinion of that op-
tion?

Ms. Shearer. Sure. We believe that medical savings account,
that approach, would be a major step backward when it comes to
universal access. It could represent employers cutting back on the
health benefits that they provide now.

Our experience with IRA accounts, typically higher income peo-
ple can afford them, but not lower-income people.

Also, the medisave accounts tend to be linked in legislation with
an approach of catastrophic health insurance, which means people
would be getting less preventive care. Total health care costs could
go up. So we have major reservations about that type of approach.

Chairman Stark. Mr. Dorn.

Mr. Dorn. I would join in all of the comments that were just
made, and I would add that the folks we represent, low-income peo-
ple, don't have the money to put aside in those accounts. They don't
even have the money to buy bread and groceries sufficient to feed
their family.

Chairman Stark. I have a hunch they would toss them a loaf or
a fish and say something about under 150 or 200 percent of pov-
erty, they get something. But I never got that far in the small
print.

Mr. Dorn. Well, you know, the question of getting a little some-
thing — I mean if you get a catastrophic policy, you don't get that
basic primary care that you need; and it would take loaves and
fishes and miracles to make sure that our clients would get serv-
ices they need under an approach like that.

Mr. KiRSCH. Medisave accounts don't help the people that are
currently underserved. It is not just the people Stan is talking
about, not just the poor. People make $25,000, or $30,000 working
several part-time jobs, yet they don't have the money to put aside-
money for such accounts.

And under such a plan, if they scraped up the money — which
they probably couldn't — and then have the high deductible, they
couldn't use that money to feed their family or pay a car loan if
need be. It is crazy.

Ms. Cain. We would concur with the statements that have been
made.

Mr. Thomas. Mr. Chairman, I apologize. I wasn't here when the
questioning went toward the concept of medisave.

Chairman Stark. Yes. I just asked them their opinion of
medisave.

Mr. Thomas. As a required system or as a voluntary one?

Chairman Stark. Someone has suggested that we take the ap-
proach as promoted by the Golden Rule and the Senate Repub-

286

licans to promote medisave accounts. What is your view of this op-
tion. That is what I asked them.

Mr. Thomas. What I wanted to ask was, in their mind, when
they answered that question, did they see it as a required position
or one that would be optional and available to those people who
chose it in terms of their response?

Was their response tied to a requirement that it be there or that
it be optional and people could choose it if they want to but would
have a full panoply of the other choices?

Ms. Shearer. Yes. The key question for us is, is it linked to a
universal comprehensive program where everybody is protected? If
it is a little something on the side, it is one issue. I mean what we
want to see is everybody covered by a health plan. We don't think
that medical savings accounts are going to provide the protection
that Americans need and want.

Mr. Thomas. Alone? You wouldn't be opposed to them if they
were offered as part of a program for those who chose to utilize
them if the other aspects were present as well?

Would you purposefully exclude them?

Ms. Shearer. Yes. Yes, we would. Because it has a potential of
undercutting the notion that we are all in this together. We want
to avoid people having catastrophic care only and then possibly

Mr. Thomas. Well, wouldn't that same argument extend to a fee-
for-service option as well?

Ms. Shearer. No. If everybody has the same basic benefit pack-
age, they choose to go to different plan approached to implement
it.

As I understand your proposal, you are suggesting that some
people would opt out and would not have a basic benefit package
but only an IRA account and possibly catastrophic policy.

Mr. Thomas. If they chose that route. I thought, interestingly,
earlier you indicated that you agreed with me that informed
consumer is one of the biggest problems we had in the system.

Some of us think that if, for those people who wish to take that
option — not required, not mandatory, not the only solution in the
system — that the kind of people who would choose it are those who
tend to be careful about their preventive care, wish to control as
much of their health care dollars as possible. By wise and prudent
choices, they could succeed in doing so and that if they choose that
option, that would be their choice. We think that would be a useful
thing to have available. Not mandated, not exclusive.

Ms. Shearer. OK. I think — we certainly don't have evidence that
indicates the profile of people who would choose them tend to take
care of their preventive health better.

What we would be concerned about is the problem we have in
the system now is that healthy people, people that perceive they
are healthy are able to opt out and not pay premiums. We believe
that health care reform requires a mandatory, everybody-is-covered
type of approach so that everybody is paying in one way or the
other and everybody is covered.

We think that a voluntary opt-out-type of approach, as suggested
along these lines, would create problems of selection, selecting out
perhaps the healthy, perhaps people who need to be putting in
their premiums, their tax dollars into the program for everybody.

287

Mr. Thomas. If they paid all the money that is supposed to be
paid and then choose this option, which in fact costs them money,
would you be willing to do that, just as you have private schools
as long as people pay their taxes and cover the public schools and
then send their children with their own money?

Chairman Stark. I could say the line of questioning is that I
might stipulate to my ranking member, that if we had a mandate
for union verbal coverage and we were able to find a way that we
could agree on the controlled costs, I always suspect there will be,
in every law, in every plan, 5, 10 or 15 percent of the people at ei-
ther end of the scale for whom our overall plan will be less than
satisfactory. And, as they do in Germany, still 12 or 15 percent,
there they say you have to have more than $30,000 in income be-
fore they will let you opt into the private plan.

So I think I could stipulate to the gentleman that we could find
a way for those who have some burning philosophic concern or cre-
ative concern to be in another plan, as long as it didn't hurt the
others we could find a way to do that.

I wanted to go on

Mr. Thomas. Let me say, I appreciate the gentleman's statement,
because that is the political answer.

You folks are continuing to operate in a theoretical model in
which you viewed real political solutions.

Chairman Stark. We don't want them running against us, Mr.
Thomas.

Mr. Thomas. Please consider your statements in the light of us
having to get 218 members to approve a plan.

Chairman Stark. I would like to go on to one more, because I
know that there was a comment by one of you on regressivity of
a VAT or a sales tax.

And I must say, I am concerned with regressive taxation myself,
but I also have a sense that perhaps the denial of benefits is even
far more regressive than a couple of points on a loaf of bread. If
I got toward the end of the string here and saw adequate coverage
for all, I think it is 240 million Americans — I think my colleague
just let in a lot of illegal aliens into his part of California, he says
280 million — ^but whatever it is, I am willing to accept.

But having said that, I think that we will come at the end of this
procedure. And, assuming we dispense with reproductive rights
and opt-outs for the independent livers, we are going to have to pay
for something.

And the question is, do any of you have a type of financing, a
sales tax, a tax on providers, a payroll tax, gasoline tax, spot me
$1 a pack on cigarettes? That is probably only $15 billion a year;
that is not going to do it.

I am thinking that we are going to need in the nature of $50 to
$100 billion depending on how fast it is phased in and how gener-
ous the benefit package is.

Could you just quickly, in summation, tell me what your favorite
tax that you think I can sell. I mean I have to get Thomas to vote
for this tax.

Now, Ms. Shearer.

Ms. Shearer. Yes. Our preferred means of paying for health care
is through increased payroll taxes and increased income taxes. We

288

do not like the value-added tax. We feel the administrative costs
needed to make it anything close to proportional as opposed to re-
gressive are extremely high.

Chairman Stark. How about just a sales tax?

Ms. Shearer. That is right.

Chairman Stark. No. I mean how about just a good old sales
tax?

Ms. Shearer. They tend to be very regressive. On the other
hand, we do support regressive taxes which are the cigarette taxes,
alcohol taxes, and firearms taxes as means of raising some reve-
nue.

We have to be realistic here. We are not talking about financing
the whole health program by these sin taxes. But we do support
them as one part of the finance package.

Chairman Stark. Mr. Dorn.

Mr. Dorn. Chairman Stark, obviously low-income people are
bearing the brunt of these different funding mechanisms. But given
the choice between bearing that burden and not receiving health
care or not receiving adequate health care or having to pay too
much for it, I would opt, in a minute, for the revenue, and so would
our clients.

Chairman Stark. Great.

Mr. Kirsch.

Mr. KiRSCH. Clearly, we favor broad-based revenues such as in-
creasing contributions on a proportionality basis from employers
and employees and progressive income taxes.

Your point is taken that the system we have now, financing
health care, is very, very regressive as are many of the proposals
that are being introduced.

And so if the question was: Can we provide the kind of com-
prehensive coverage to everyone based on the taxes that we have?
We would have to give our members that tradeoff, and it would be
a tradeoff. We think there are other options that are preferable.

Chairman Stark. Ms. Cain.

Ms. Cain. Yes. When we did our study, we asked our members
specifically, were they "willing to pay more taxes for comprehensive
health care reform?" They said, indeed, they were.

Our preferred method is through an income tax. We are opposed
to a value-added tax, and we, too, hold strong on the sin taxes and
would hope that you would hold tough on the amount.

Chairman Stark. When you polled your members and they indi-
cated a willingness for an increased income tax, did they quantify
that?

Ms. Cain. Yes. In response, they want comprehensive reform,
which to us means

Chairman Stark. How much are they willing to pay?

Ms. Cain. Oh, no. There was not a specific number tied to com-
prehensive reform.

Chairman Stark. Unfortunately, polls have shown a willingness
on the public in general. But when you force the question, as the
poll officers will, once we get up over that $2 a month, we run out
of enthusiasm, about at the same time we run out of money. So it
is still a problem.

289

And I do appreciate the suggestion that there is some room for
compromise. I can justify it in my own mind that it is among the
most regressive problems that people face in life, the absence of
medical care, which often is a cliff, regressive sales taxes are at
least linear in how they impact on you.

But the other side might be worse, and I appreciate your willing-
ness.

Mr. DORN. Chairman Stark, if I could just add one comment to
what I said a moment ago. I think there are ways to structure
these revenue streams to reduce the impact on some of the poorest

Eeople. For example, exclusions from the sales tax of some of the
asic necessities of life.

Mr. Thomas. One followup in terms of where we are getting the
revenue.

Do you believe that over a 5-year period you can get $240 billion
out of Medicare and Medicaid by squeezing out waste, fraud, and
abuse?

Or another way of saying it — well, $124 billion out of Medicare
and $114 billion out of Medicaid. That is $240 billion over the next
5 years, squeezing out waste, fraud, and abuse, and a 50 cent tax
on tobacco, which is the President's proposal to pay for the plan.

Do you believe that is honest and realistic and doable, squeezing
out waste, fraud, and abuse to the tune of $240 billion and a 50
cent tax and tobacco, yes or no, down the line?

Chairman Stark. If the gentleman will yield, it was more than
waste, fraud, and abuse. It was reducing payments as well.

Mr. Thomas. I understand. I understand reducing payments. But
that, then, gets you into the quality part of it.

Chairman Stark. But $240 billion was not all on waste, fraud,
and abuse. It also included lower payments.

Mr. Thomas. And I would ask my Chairman to go back to the
September 22 address of the President to the joint session of Con-
gress, and you will find precious little reference to that and a
heavy, heavy dose of waste, fraud, and abuse. So I will concede $40
billion out of that, $200 billion in waste, fraud, and abuse.

Back to the original question. Simply, yes or no, do you believe
the President's funding mechanism will work or do you believe Sen-
ator Moynihan, it is a fantasy?

Ms. Shkarkr. That is a tough yes or no. Closer to yes than no.

Mr. Thomas. Mr. Dorn.

Mr. Dorn. May I give more than a yes or no answer? I think it
is an important question, and I have some thoughts.

One — and we focus more on the Medicaid program than the Med-
icare. First of all, I think there are ways to achieve fixing the Med-
icaid program. In particular, the Boren amendment passed in the
early 1980s has provided a tremendous amount of money to hos-
pitals and nursing homes. I think it is worthwhile taking a look at
that.

Mr. Thomas. Nobody disagrees with you that we can get money
out of the system. The question is, over 5 years, can you get $200
billion-plus with waste, fraud, and abuse?

Mr. Dorn. Let me lay out my concern about the President's ap-
proach in terms of Medicaid. As I understand the folks from the ad-
ministration, their theory is, if we bring inflation in the private

290

sector under control, then those savings will translate into savings
in the Medicare and Medicaid programs. And I think that may well
be true.

But our concern is that, if the private sector controls fail, Con-
gress can turn the tap on Medicare and Medicaid. That is in the
Congress' exclusive control. And we would fear a situation where
private sector costs continue to escalate and Medicaid costs get cut
with caps put on.

Mr. Thomas. Well, and what you've just stated is a very real con-
cern of all of us, because every year we have moved toward trying
to reduce the deficit by making cuts in — principally Medicare.

Those imbalances are going to continue over those same 5 years
that he is going to be getting his money to fund his system. No one
has yet explained to me where we are getting the other money to
continue to do what we used to do with the Medicare money, and
that was play with it in this committee to reconcile the budget.

Mr. Kirsch.

Mr. Kirsch. We believe it is possible to, if you slow down health
care inflation in the entire system at the same time, we believe you
can do that in Medicare and Medicaid. It is not just waste, fraud,
and abuse.

If you look in the plan, there are specific items like changes in
provider payments, copayments, some of which we would favor,
some of which we wouldn't. But the basic fact is those aren't cuts,
they are slowing down the rate of inflation. We think you can slow
down the rate of inflation provided you provide the right incentives
to do that.

Mr. Thomas. You had that chapter and verse.

Go ahead.

Ms. Cain. We have not done a statistical analysis to answer you
directly. We do believe that there can be some cost savings. Wliat
they are, we cannot quantify for you exactly. Our members have
said that, after you contain costs, we are willing to pay more taxes
if that is necessary.

Mr. Thomas. I won't spend time on the tax, but let me tell you,
at some point in this system, we have got to examine whether or
not we are going to go against the rest of the world and continue
to base virtually all of our payments, including this enormous new
entitlement program, on income tax. When somebody already has
a program and you are going to get him, through the income tax
to pay for others, they are going to say, I am paying more and get-
ting less and you have products coming into the United States that
are not taxed as opposed to our products going into the other coun-
tries.

To a certain extent, we have got to look at the way the rest of
the world is acting. We either continue to swim upstream or begin
to talk about conformity. When you get into the real world trade-
offs, the idea of simply saying that it is going to be payroll or in-
come tax and that you refuse to look at other options because they
are, "regressive," either in terms of replacement revenue for the
way in which we charge things or new revenue, you fall into the
trap of arguing that our system is, in fact, a good system vis-a-vis
the rest of the world in taxation. We simply do not do what the rest
of the world does. What we do, worse than anybody else, is tax sav-

291

ings, tax investment, and allow goods to cross our borders that we
pay the health service costs of other countries through. We don't
have those other countries helping to share our costs.

Once again what I hear is primarily some knee jerk reactions in
terms of types of tax systems, instead of taking a look at the prob-
lem that we have. I don't know why in the world you move so read-
ily away from a suggested change in the tax system that would
help Japanese and Germans pay for American health care costs,
when Americans pay for Japanese and German health care costs
by virtue of their tax system.

And I guess, Mr. Kirsch, you are willing to say that Senator Moy-
nihan was way out in right field when he said that the Clinton fi-
nancing system was a fantasy.

Mr. Kirsch. Let me comment that in terms of international com-
petitiveness, our businesses are paying, in effect, a very large tax
for health care. We had a person in our polling study who paid 19
percent of his payroll for health care.

Since the President's program is bringing that down to 8 percent,
though that figure may be too low for us to afford it, we are going
to increase international competitiveness tremendously with his
plan. There are no savings like that in the Michel proposal or Coo-
per-Grandy proposal.

Mr. Thomas. Since I get the last comment — and this will be the
last comment, Mr. Chairman — I don't know anybody who believes
that business pays for anything. I constantly have to remind my
friends in the business community of this. Business doesn't pay for
anything. It is like government, government doesn't pay for any-
thing; business doesn't pay for anything. It either comes out of an
increased cost to the consumer in the product or reduced profit to
the owner in terms of dividends or out of the employee.

And I have seen some very persuasive studies that show over the
last 20-year period, especially when there were increased costs in
fringe benefits and the employer-employee using the government to
hold the bag in increased fringe benefits because of no caps on the
taxes. That, adjusted for inflation, total compensation, wages, and
fringe benefits, have gone up 12 percent. Hourly wages adjusted for
inflation over the same 20-year period went down 6 percent. Busi-
ness isn't paying for these increased costs. The employee is, as is
always the case.

Chairman Stark. I want to thank the panel. I would say that a
bill that was introduced by the majority leader and myself in the
last Congress did score, by CBO, $300 billion a year by the end of
the decade in savings, $200 billion of that went to the private sec-
tor, and $100 billion a year was in the public sector. Medicare and
Medicaid, by virtue of restricting the payment structure in this
country to the Medicare and the private sector rates but limiting
the inflation rate from 10 percent, ratcheting it down to 6 percent
over the period of time.

Now, although we got CBO scoring, there is no scoring as to
what that might or might not have done to quality and the rest.
And that is the concern. I think that we can find the savings in
the aggregate if he can mandate it.

292

But the concern I think of this committee and the panel, the
ranking member and myself, is the unintended results of those sav-
ings in a complete system.

And I appreciate the gentleman's raising that issue. And I thank
the panel very much. I hope, as I suggested to the other witnesses,
that you won t be bashful about coming forth to us formally or in-
formally over the next year as we work on this problem, because
your testimony and your concern is appreciated.

Thank you very much.

Our third panel today will be comprised of a variety of special
interests who have a very important role to play, other than just
trying to destroy the President's plan. I want to welcome Jeff
Smedsrud, who is the executive vice president of an organization
called Communicating for Agriculture; and Dr. Richard
Ehrenkranz, public policy fellow, with the March of Dimes Founda-
tion; and Daniel T. Bross, who is the executive director of the AIDS
Action Council.

Welcome, all of you. Please proceed in the order you were an-
nounced.

Chairman Stark. Mr. Smedsrud, please proceed.

STATEMENT OF JEFFREY SMEDSRUD, EXECUTIVE VICE
PRESIDENT, COMMUNICATING FOR AGRICULTURE

Mr. Smedsrud. Thank you.

Mr. Chairman, members of the committee, my name is Jeff
Smedsrud. I am executive vice president of Communicating for Ag-
riculture, which is a national rural association that represents
some 80,000 farmers and ranchers and rural small businesses. We
have been involved in health care reform for a number of years.

This week we brought the State directors of the 27 programs
that provide services to those that can't get insurance to Washing-
ton, D.C., for our annual conference.

Last week we brought about 110 farm leaders from around the
country in to look at the various aspects of health care reform.

Recently, we did a survey of farmers all around the country re-
garding their attitudes on health care reform. Let me just point out
some of the very sharp differences that existed between those who
said they voted for President Clinton, those who voted for Bush,
and those who voted for Perot in regards to what they see as their
problems in health care and how they would expect to solve those,
as well as some very significant differences between men and
women who responded to health care questions.

I am going to deviate a little bit from my written remarks.

We believe there are distinct advantages to businesses and indi-
viduals to pool together in health cooperatives. Farmers believe in
co-ops, businesses form purchasing groups; consumers have created
buyers markets. We think they ought to continue to push for and
build those cooperatives.

We have a lot of trouble with the President's plan in the way in
which his alliances or "cooperatives" work in the plan, as best we
all understand it. We think it suffers, quite frankly, from an intel-
lectual disconnect in terms of how those alliances would or would
not work. Those alliances are often described as warehouses where
everybody would come in and purchase health plans.

293

The reality is that in many instances those alliances would have
the opportunity to select only one plan in rural areas. They could
decertify plans. They would do risk adjusting amongst plans. They
would make sure that plans meet certain standards. They would
offer data and quality information.

In essence, those alliances would have not a little bit of authority
and power. They would have a great deal of authority.

We would suggest that as an alternative there be multiple and
voluntary alliances that would be working alongside the regional
alliances.

Now, those in the administration who say that is not a very good
idea to have voluntary multiple alliances point out that this would
lead to some sort of risk selection. If there were voluntary alli-
ances, there are risk adjustment methods that could probably be
utilized. Those who would suggest that those risk adjustment
methods don't work ought to also look at the fact that they would
be using the very

Chairman Stark. Could I go back just a minute, because we
were talking about that before the hearing this morning.

You don't mind the alliances as long as they are voluntary, is
that what I understand?

Mr. Smkdsuui). I would create a series of voluntary alliances.

Chairman Stark. Anybody could come in, co-ops could come in.
But you are saying the administration told you that would create
a different kind of risk selection?

Mr. Smkdsrui). That would create a risk selection.

Chairman Stark. And there wouldn't be risk selection in a man-
datory alliance?

Mr. Smkdsrud. Well, they said they would have risk adjustment
procedures in a mandatory alliance. My response to that is if you
are going to use the risk adjustment procedures in a mandatory
alliance

Chairman Stai^k. Did they outline for you this risk adjustment
procedure?

Mr. Smkdsrud. No. No one has outlined this. I testified yester-
day before the Senate Labor Committee

Chairman Stark. Do you remember Paul Bunyan?

I think he was from your State.

Mr. Smkdsrud. He was from my State, correct.

Chairman Stark. I think he knew about risk adjusting. Babe
knew about it, but they didn't pass on the secret.

OK. Go ahead.

Mr. Smkdsrud. The point, quite frankly, I am making is that if
there is risk adjustment in the mandatory alliances, then risk ad-
justment must work; and, therefore, there ought to be allowed risk
adjustment in voluntary alliances.

If risk adjustment doesn't work in the mandatory, it won't work
in the voluntary either. But if it works for one, why wouldn't it
work for the other?

Chairman Stai^k. Makes sense to me.

Mr. Smkdsrud. The point I would make, to continue on, the sur-
veys that we have been doing, the talks that we have been giving,
poll after poll confirms the obvious, that the more people hear
about the plan as it is structured, the more confused we all get.

294

Our efYbrts in working with farmers is to try to determine what
types of reforms there need to be. On the broad principles there is
hardly any disagreement at all. How we get there is where every-
body disagrees.

I would like to conclude by walking through five or six concerns
that we would raise on behalf of rural America about the way the
President's plan is structured at this point.

First, we question whether or not the standard benefits are, in-
deed, too good. We think there ought to be a little bit more flexibil-
ity in defining those benefits and in particular as you get to the
point of costing those things out.

Second, we have a real serious question: Will rural subsidize
urban? If you put everybody in a single State in one alliance and
say everybody ought to be charged the same, basic medical costs
are less in rural communities. If you put rural and urban together,
you are indeed going to have rural subsidizing urban.

Third, we question will fee-for-service plans, structured within
the framework of the rules that the alliance would have, be a via-
ble option?

We also question, although the alliance says you will have a
choice of plan, if that alliance has the right in rural America to se-
lect one plan, if it has the right to decertify a plan, if it has a right
to cap enrollment in a plan and put you in a plan not of your own
choosing, we really wonder what kind of choice we really have
when it comes to fee-for-service plans.

Fourth,! would look at the economic impact on rural commu-
nities. We believe in forming cooperatives. We believe in a sort of
bottoms up approach to reform. But if the effort is to achieve effi-
ciency by having that alliance exercise whatever power it can to
make bigger and better systems, what is that going to do to small
town hospitals in rural communities and rural clinics?

I would raise some questions about some of the incentive pro-
grams, the way they are structured.

And finally, on behalf of rural people, I would raise a lot of ques-
tions about the makeup of a National Health Board. Seven people
on that National Health Board would have enormous powers. What
guarantees can we have that minority interests, such as rural in-
terests, get a fair shake from these seven people?

Quite frankly, you can say, well, we will make three rural and
four urbans. But it is four against three. And you can go on and
make it four rural versus three urban, and you would have the
same argument. It is a lot of power in the hands of a very few peo-
ple that don't have a very good understanding of the distinct dif-
ferences in the delivery of health care and the access to health care
that exists in rural America.

With that, I would be happy to answer questions at the appro-
priate time.

[The prepared statement and attachments follow:!

295

COMMUNICATING FOR AGRICULTURE

2626 E 82ncl Street

Suite 325

Bloomington, MN 55425

(612)854-9005

1 800 445-1525

Testimony of Jeffrey Smedsrud,
House Ways and Means Committee
Oct. 21, 1993

Mr. Chairman and members of the committee, my name is Jeff Smedsrud. and I am
executive vice president of Communicating for Agriculture, a national rural association
that represents about 80,000 farmers, ranchers and rural small businesses.

CA has had a long involvement in health reform. For 17 years wig have helped create
state risk pools for those denied insurance for health reasons. This week, we brought
the directors of the 27 states that operate these programs to Washington, D.C., for our
annual conference.

Last week, we organized a conference in Washington that was co-sponsored by 1
other national rural and commodity associations. More than 100 farm leaders worked
together to examine the impact of various health reform proposals.

We recently completed an independent survey of America's farmers regarding their
opinions on health care refomn. Attached are results from that survey.

CA wants to ensure that the freedom to make health care choices is not a casualty of a
reformed health system.

Let me be clear. There are advantages to business and individuals pooling together
in health cooperatives. Farmers believe in cooperatives. Businesses have formed
purchasing groups. Consumers have created buyers' markets. But always they do so
with the belief that consumers — and not the government — will manage and run the
cooperative or purchasing alliance.

Simply stated, mandatory health alliances are monopolies. Monopolies stifle
competition. Lack of competition limits choices, and limited choice can reduce quality.

In my home state of Minnesota, the growth of voluntary health alliances is one of the
reasons we have become a national model.

Let me review a few of Minnesota's shining stars:

— In Red Wing, a river town of about 15,000, a community-led initiative pooled
large and medium-sized businesses together and improved care while
bringing costs down. Why did they do it? Because smart-thinking local leaders
knew that jobs were being lost, because more and more of the local health
dollars were migrating to Minneapolis or Rochester. Pulling the community
together and working with people to get their care locally put more money into
the local economy.

In rural America, health care refprm must be at?Qut jobs — crftating lobs, not
losing them in the name of large-scale efficiencies.

— Forty-nine rural hospitals — some of which are in North Dakota and South
Dakota — are in the process of partnering with insurers and employers to
create their own voluntary, regional alliance. The goal is to operate the plan as
a true cooperative, and see 90 cents on the dollar go back to pay the
medical costs. It eliminates duplicative administrative functions, and develops
community profiles to deliver the types of services that best meet local needs.
They will utilize data to manage costs and change practice parameters. No part
of it will be based on risk selection.

296

— And finally, while many large businesses have for years formed powerful
networks, a group called The Employers Association has pooled 80 small and
medium-sized firms into a voluntary network. The result: a three-year guarantee
of very stable prices.

Across America, new voluntary alliances — in many shapes and sizes, with differing
names and structures — are changing the face of health care. We, the people, are
forging our own American solutions to the health care crisis. And with common rules,
standard practices and a level playing field, the people — and a reformed market —
will continue to find better solutions than would ever be achieved by government
monopolies.

Voluntarv alliances can help solve the health cris is but onlv if thev get a heloina hand
from a gove rnmftnt that attempts to nourish change, not control it.

Without question, all Americans must have access to health insurance — and
government must guarantee it.

Without question, there should standards for alliances — and government should write
and enforce the rules.

Without question, tax policy should be fair and equitable — and government can make

Without question, technology and data play significant roles in improving care and
lowering costs — and government ought to remove barriers.

In short: Government doesn't have to run the health care system in order to make it
better. Mandatory alliances will be giant, regulatory monopolies that will not serve the
best interests of rural America. We will be better off if we grow our own solutions.

Out in the country, many farm and rural associations offer excellent plans. Groups like
The National Association of Wheat Growers ... The American Soybean Association ...
The American Veterinary Medical Association ... The National Grange ... CA ... to
name but a few.

For many Americans, the message of mandatory alliances is this: You won't be able to
keep the plan you now have, even if it costs you less and you like it more.

Instead of tearing down existing plans, why not use them as the base to do an even
better job?

If pooling arrangements are working in the private sector — and in many cases they
are — why replace them with a new government-sponsored system that is unproven?

When Florida reformed its health market it created new health purchasing pools. But it
does not make them mandatory.

In California, many small companies are joining a new health insurance purchasing
cooperative. The state chose to make the pool voluntary — not mandatory.

Texas and many other states are working to encourage purchasing cooperatives —
but they won't be mandatory.

Let me give four sound reasons to encourage voluntary, competing purchasing
cooperatives:

1. It maintains an employer's ability to control cost and retain a role in
negotiating the best deal.

297

2. They retain freedom of choice. If the cooperative doesn't do a good job,
people have the right to go somewhere else.

3. It puts control over how to solve health problems in the hands of local people
and maintains existing, valued relationships.

4. It creates true competition on a fair and level playing field.

I'd like to conclude my remarks by highlighting several troubling points of the
President's plan — in addition to the aspect of voluntary vs. mandatory alliances —
that will be challenging for rural Americans. I raise six questions:

1. Are the Standard Benefits Too Good?

The President's plan will require all individuals to purchase a plan with generous
benefits and low deductibles, and the plan will be community-rated. Farmers tend to
buy a plan with high deductibles and "self-insure" for routine, nonemergency
expenses. The President's plan means more insurance with more benefits, but it may
also raise the costs for some. Shouldn't more individual flexibility be allowed?

2. Will Rural Subsidize Urban?

Because the President's plan would prohibit health plans from offering different rates
based on geography, rural residents — where basic medical costs are less — may
end up subsidizing their city cousins. States that have made progress on reform have
acknowledged the need for urban vs. rural differentials as part of modified community
rating.

3. Are Fee-for-Service Plans Really an Option? How Much Choice Will There Be?

Fee-for-service is still the primary option in rural America. Managed care has not been
viable in many areas. Fee-for-service plans would be allowed in the President's plan,
but only under a "single payer" fee schedule set by the alliance.

And even though the alliances claim to give choice of plan, if a plan wasn't successful
in keeping its costs in line with other plans, the alliance could move people into more
cost-efficient plans, against their will. In rural areas, the alliance may choose a plan for
us.

4. What Is The Economic Impact For Rural Communities?

In the President's plan, large alliances will, in theory, hold down costs by improving
efficiencies. Rural residents are worried about the likely transfer of jobs and medical
facilities to regional centers, accelerating the demise of small town hospitals and very
small communities, if small town hospitals — often the largest employer in a
community — are forced to close, it will cause jobs to be lost, and diminish the
prospects of bringing new jobs to the community. Funding for the President's plan
comes, in part, from cuts to Medicare and Medicaid. These cuts will have a
disproportionate impact on rural hospitals.

5. Will the Incentives For New Providers Really Help Underserved Areas?

Rural areas face a critical shortage of medical personnel, and the average age of
doctors is higher than in urban areas. Incentives are clearly needed. However, some
incentives in the President's plan are linked to the designation of an area as a federal
Health Professional Shortage Area. Areas that meet the HPSA designation have
access for incentives; those that just miss the cut-off do not. In addition, areas that use
the incentives to recruit physicians face the loss of the designation after three years,
creating instability to an already fragile system. In addition, the use of physician-to-
population ratios as the measure to allocate resources may not always be appropriate

298

when the need, for example, is additional nurses or physician extenders.

6. National Health Board: Too Much Power In Too Few Hands?

Surveys by CA and others point out that people are skeptical both of too much
government intervention and of too little. But what is the proper mix?

The President's plan would create a seven-member national health board that will
have enormous powers. If states cannot live within budgets established for them by
the National Health Board, the federal government could intervene and either move
the state toward a single-payer system or impose new requirements on businesses
and providers in that state. And how will minority interests — such as rural areas — be
given a fair shake by a board that will likely be dominated by urban, large-scale
interests?

The choice for rural residents is clear: We can either lead change by forging new,
innovative, voluntary, local cooperatives or we can be herded into plans dominated,
controlled or designed by others. Encourage health cooperatives, but let them be
voluntary.

Thank you.

299

Survey of Farm Owners/Operators

Commissioned by:
Communicating for Agriculture

Completed by:
Minnesota Survey Research

October 5, 1993

300

Executive Summary

A national telephone survey about health care
reform was completed on September 13-20,
1993. A total of 399 farm owners/operators in
the U.S. were surveyed.

The survey was designed to gather farm
owners/operators opinions about the current
state of health care, and about some of the
proposed health care reforms that arc
currently being discussed. The survey was
completed just prior to President Qinton's
address to the nation on health care reform.

Significant findings of the survey are as
follows:

— Farm owners/operators beheve that
"Doctor and hospital fees" and "The cost
of treating those with no health insurance"
are the two biggest contributors to
increasing health care costs.

— Farm owners/operators beheve it is very
important that they maintain control over
the choice of doctor and the choice of
where they go for health care. Nearly six in
ten said they would be unwilling to give
up some control over those choices in
exchange for lower costs. Less than one-
quarter of survey respondents said they
would be willing to give up some control
to save money. About one in ten might be
willing to give up conool, depending on
the amount saved.

— About three in ten farm owners/operators
would be willing to have their taxes
increased in order to help pay for health
insurance coverage for all Americans.
Another one in seven might be willing
depending on the size of the tax increase.
However, just less than one-half of £arm
owners/operators say they are unwilling to
have their taxes increased to help pay for
coverage for all Americans.

— About two-thirds of farm owners/operators
believe that the govenunent should not

require all employers to pay for health
insurance for full-time and part-time
workers.

— Nearly six in ten farm owners/operators
believe that a mix of govenmient and the
private sector can best administer cost
efficient, quahty health care. Only one in
50 think govenmient alone can do the best
job; about one in three think the private
sector alone can do the best job.

— The two biggest priorities in reforming the
health care system should be "Guaranteed
insurance that cannot be cancelled" and
"Reforming the medical malpractice
system' according to farm
owners/operators.

— About one-half of fiarm owners/operators
are in favor of an IRA-type of he^th care
account Such an account would set
money aside to be used only for medical
costs, and would trade lower premiums for
higher out-of-pocket costs.

— There were significani differences in
opinion between those who said they
voted for President Ointon in "92, those
who said they voted for President Bush,
and those who said they voted for Ross
PeroL

— About sixty percent of survey respondents
were women. The survey asked for "The
person in your household that makes the
majority of health care decisions for your
household."

— Ninety-three percent of farm owners/
operators in the survey have health
insurance.

Further information about the survey itself
and further analysis of responses to each of
the questions can be found in the body of the
report which follows.

Communicating for Agriajlture Survoy

301

A national telephone survey about health
/i care reform was completed on September
13-20. 1993. among 399 farm owners/
operators in the U.S.

The survey was conunissioned by
Communicating for Agriculture. CA is a non-
profit, non-partisan rural organization made
up of farmers, ranchers and rural small
agribusiness owners and workers throughout
the country. CA represents more than 80,000
people in family and individtial members in
49 stales. CA works actively on several public
policy issues, including rural health care,
developing new industrial uses of agricultural
products, esublishing beginning farmer
finance programs, tax policy for producers and
the self-employed, and rural development

The survey was designed and completed by
Miimesota Survey Research. St, Qoud.
Minnesota. MSR is a national polling and
research firm. MSR has been in business since
1978 and is a division of Meyer Associates,
Inc. The parent company operates advertising,
marketing, telemarketing and fimdraising
divisions for numerous regional and national
clients.

Survey Respondents

The farmers chosen for this study all own and
operate their own farm of at least 300 acres.
Their names were selected at random from a
database of over 1 million farm
owners/operators provided by Ag/Response.
Ag/Response is the list and marketing services
division of Prog ressive farmer, one of the
country's widest circulation general farm
magazines. Farmers in 39 of the continental
48 states were represented in the survey.

Further information about survey
respondents appears at the end of this report.

Survey Design And Implementation
The survey questions were designed by
Communicating for Agriculture and

Survey Design & Methodology

Minnesota Survey Research. The questions
covered two basic areas — the first asked for
basic attitudes and beliefs about U.S. health
care; the second asked for opinions about
specific proposals for health care reform that
have recendy been discussed in the media.

Phoning took place from September 13-20.
1993. A total of 1.785 dials were made, and
590 farm owners/operators were contacted.
399 of these agreed to complete the survey.
This is a completion rate of 68%.

The toul of 399 respondents gives the
survey data a margin of error of 3.9% at a 95%
confidence level.

Interpreting The Results
When interpreting the results of this survey,
there are two things that should be kept in
mind. First, the survey introduction asked for
'The person in the household that makes the
majority of health care decisions for the
family." This resulted in a female to male ratio
of 60% female to 40% male.

Second, this survey was completed just prior
to President Clinton's nationally televised
September 22 health care speech before
Congress. Many elements of his health care
reform package were known and discussed
prior to the speech. Some of those elements
were questions in this survey

This Report

In this report, the survey results concerning
health care are given firsL Next, a section
describing the demographics of survey
respondents is given. In the appendix, the
survey questionnaire and a listing of the
"Other" responses that were written down
during phone calling are included.

The raw data for the survey, along with the
three cross-tabulations that were run. are
under separate cover.

Communicating tor AgriculUm Survey

302

Reasons For Health Care Costs

Questions 5-12

How much has each of the following contributed to the increased cost of health care?

Very

Not

Significant

Signincant

Doctor and hospital fees

64.7%

27.1%

2.8%

Cost of treating those with no health insurance

61.4%

26.1%

6.8%

Unnecessary tests. X-rays and procedures

50.6%

34.3%

83%

Administrative expenses in the insurance industry

45.4%

35.1%

4.5%

Cost of prescription drugs

44.9%

41.6%

9.3%

New medical technology

40.6%

45.6%

8.3%

Government regulations

37.1%

33.8%

10.3%

Table 1— Questions 5-11

Questions 5-11. Fm going to readyou several
reasons that may be responsible for the increase
in health care costs. For each, please tell me how
much you think it has contributed to the
increased cost of health care. The first choice is

. Has that contributed significantly,

somewhat significantly or not at all to the
increase in cost? (Choices were: administrative
expenses in the insurance industry, government
regulation, new technology, unnecessary tests, X-
rays and procedures, the cost of treating those
with no insurance, and the cost of prescription
drugs.)

Question 12. Of those you said were significant,
(READ HST), which one do you believe is the
most sigriificant reason for increasing costs?

Participants were asked to respond to each
of the seven reasons listed in the
question, and to rate each as "very
significant,' 'somewhat significant," or "not
significant" After they had completed that
task, they were asked to go back and choose
the single most important reason. There was
general agreement between these two methods
of asking this question (compare the pie chart
of question 12 on the next page with the table
of questions 5-11 above).

"Doctor and hospital costs' leads the list of
reasons why medical costs arc increasing, say
survey respondents. Nearly two-thirds of them
reported that these costs arc a "very
significant' reason.

Next in the list of reasons is 'the cost of
treating those with no health insurance.'
Again, nearly two-thiids of survey
respondents pointed to this reason.

About one-half of survey respondents say
that "uimecessary tests. X-rays and
procedures' are very significant reasons.

Lowest on the list of very significant reasons
is "government regulation." Only about one-
third of survey respondents think it is a very
significant reason for increasing health care

Communicating for Agriculture Sunny

What la tha moat algnlfleant raaaon for Incraaaing coata?

D Doctor/hoapltal faaa

B Inauranca admin, axpanaaa

H Naw tachnology

D Unnacaaaary taata. X-rays

B Coat of traating unlnsurad

D Praacriptlon druga

B Othar/don't knew

costs. However, this lespoose and one other
("administrative expenses in the insurance
industry") had very high "Don't know"
percentages (18.8% and 15.0% respectively).

There were some difFerences in these
questions based on who respondents voted for
in 1992. For example, those who voted for Bill
Clinton were somewhat less likely to beheve
government regulation is a very significant
factor in rising health care costs than those
who voted for George Bush or Ross Perot

Communicating for AgricutoM* Simmy

304

Control Versus Costs

Question 13

Would you ba willing to giva up soma control ovar haalth cara daclslons In
axchanga lor lowar costs?

1^^

DVas, gIva up soma control
H No, wflfit control
■ Mayba, dapands on savings
Dothar/don-t know

Question 13. Would you be willing to give up
some control over your personal health care
decisions — such as choice of doctor or where to
go for care — in exchange for lower costs?

Only about one-quarter of survey
respondents say they are willing to give
up control over their health care decisions in
exchange for lower costs.

About one in ten may be willing to give up
some control, depending on the savings such a
change would generate.

Overall, about 6 in 10 of those surveyed
would not be willing to give up control of
health care decisions to lower costs.

Presidential choice had some bearing on
results in this question. Those who voted for
Clinton in '92 were somewhat more likely to
be willing to give up some control in exchange
for lower costs than those who voted for Bush.
Those who voted for Perot in '92 were even
more likely to be willing to give up some
control than Clinton supporters.

Communicating for Agriculture Survey

Willingness For Tax Increase

Questions 14-15

Would you ba willing to hav* your taxaa Incraasad In ordar to halp pay for
covaraga lor all Amarlcans?

DVaa, willing

to hava

Incraaaa

■ no, no Incraaaa

■ Dapanda on

alza of

Incraaaa

D Othar/don-t

Icnew

Question 14. The ClirUon administration is
considering health care reform that is designed
to cover every American. This may result in new
taxes for everyone. Would you be willing to have
your taxes increased to insure coverage for every
American? (If answered "Yes' or 'Depends,'
respondents were then asked the next question.)
Question 15. How much would you he willing to
have your taxes increased per year in order to
help pay for coverage ofaU Americans?

Just over one-quarter of survey
respondents say they are willing to have
their taxes increased in order to insure that
every American has health insurance.

About one in seven report they may be
willing, but it will depend on how much their
taxes increase. Nearly one-half of those
surveyed are not willing to have their taxes
increased to insure coverage of all.

This was one of a few questions in the
survey showing a significant difference
between political parties. About four in ten
respondents who identified themselves as
Democrats would be willing to have their
taxes increased to insure coverage for
everyone. Only about one in five RepubUcans
said they would be willing to see such an
increase. (See chart on next page.)

This question also points out a sharp
philosophical difference between those who
voted for Ginton in '92 and those who voted
for Bush. Almost one-half of those who voted
for Clinton are willing to have higher taxes in
order to provide coverage for all. Less than

Communicating for Agricullum Survvy

306

Would you ba willing to havs your taxaa Incraasad to Insura covaraga lor
avary Amarlcan?

S.60%

■^.40%
^.30%

N-10%
0%

Q Damocrat
■ Republican
Hindapandant

How much would you be willing to
have your taxes increased per year in
order to help pay for coverage of all
Americans? (179 responses)

Less than $50

27.4%

$50 to $99

25.1%

$100 to $249

23.5%

$250 to $500

6.1%

More than $500

2.8%

Don't know

15.1%

Table 2— Question 15

one in five who voted for Btish are wilUng to
see a tax increase.

Those who are willing, or might be willing,
to see a tax increase were then asked how big
an increase they could Uve with. More than
three-quarters said that the increase should be
$249 or less per year. (See Table 2 above.)

Communicating for Agriculture Survey

307

Employers And Health Insurance

Question 16

Should th* govammant raquir* all amployars, ragardlass of alza, to pay for
haalth Insuranca for full-tlma and part-tlma amployaaa?

OVaa, ahould raquira
HNc, ahould not raquira
■ Full-tlma, but not part-tlma
Dothar/don't know

Questitm 16. Do you think the government
should require aU employers, regardless of their
business size, to payjor health insurance jor
their juW-time and part-time employees and
workers?

A bnost two-thirds of survey respondents
/t answered "No" to this question. This is
the largest negative response in this series of
questions about health care plan proposals.

About one in five say that government
should require insurance for all employees. A
small group (about 3% of the survey
respondents) feels that coverage should be
mandatory for full-time employees, but not
part-time, and another small group (5%) adds
other qualifiers.

Democrats and Republicans are somewhat at
odds over this issue. About twice as many
Democrats as Republicans say that
government should make coverage of all
workers mandatory. And while one-half of
Democrats are against mandatory coverage,
three-quarters of RepubUcans are opposed.
(See chart on next page.)

Communicating for Agriculture SurMy

308

Should tha govarnmant raquira all amployara, ragardiasa of alza
haalth Inauranca lor full-tlma and part-tlma workara?

to pay for

\B0%
^■70%
^.60%

^ 40%
^ 30%
N.20%
^ 10%

^ft^

D Damocrat

■ Rapubllcan

■ indapandant

^^^^^H

■■

■

^T^«S

■

Yaa No Dapanda Othar

Communicating for Agriculture Survey

309

Administering Health Care

Question 17

Who can admlnlstar tha moat coat afflclant, quality haalth cara plan— tha
6% 2%

DCovarnmant

■ Privata aactor

■ mix of both
Oothar/don't know

Question 1 7. In your opinion, who do you feel
can best administer the most cost efficient,
quality health cart — the government, the private
sector, or a mix of both?

« f early six in ten respondents say thai a
/ V mix of government and the private
sector is the best way to insure a cost-efficieni,
quality health care system.

Few survey respondents believe that
govemment alone can administer a cost
ef&dent, quality health care system Only
eight respondents (2% of the total survey) feel
government can do the best job.

On the other hand, about one-third of
respondents believe that the private sector can
do the best job of administering health care.

This question also elicited one of the few
differences in response by gender. In the
survey, men were more likely to say that the
private sector can do the best job; women
were more likely to say that a mix of
govemment and the private sector is best.
(Sec chart on next page.)

Responses to this question also varied by
presidential voting pattern in "92. Ointon
supporters say that a mix of govemment and
private enterprise is better by a margin of
almost five to one. Bush supporters split down

Communicating for Agricutun Survty

310

Who can admlnlatar tha most cost alflclant quality haalth
govarnmant, tha prWata sactor or a mix of both?

eara— tha

V"*

V.50%

S.10%

■ —

-^"

■

DMala
■ Famala

■

^4^2^

fc^

Govarnmant Priv. sactor Mix of both Othar

the middle, with one-half saying the private
sector can do a better job, and one-half saying
a mix is best Perot supporters fell somewhere
in the middle — about twice as many say a mix
can do the best job as say the private sector
alone is best

Communicating for Agricultum Survey

311

Premiums Versus Taxes

Question 18

Which

Is prafarabia to you— highar haalth
10%

14% ^.^jg^i^w

34%

cara pramlums or highar Uxasi

^^s. 36%

D Highar pramluma

■ Highar Uxaa

■ Ooaan't mattar
DNalthar
Bothar/don't know

Question 18. Health care r^orm Aat improves
access to care and increases tJic number of
insured Americans may result in an increase in
your health care costs. If you had to choose one,
which of these options is pr^erdhle to
you — higher premiums or higher taxes?

rhere was no clear consensus on this
issue. Slightly more than one-third of
respondents say that higher premiums are
preferable; just about one-third say that higher
taxes are preferable. And one in twenty
respondents says it "Doesn't matter — ^it's all

A significant minority (about one in seven
respondents) says that neither is acceptable.
This question also elicited a high 'Don't
know" response — ^nearly one in ten
respondents had no opinion.

Those who voted for Clinton in "92 are
somewhat more likely to report a tax increase
was preferable; those who supported Bush are
a little more likely to say higher premiums are
best

312

Priorities In Health Care Reform

Questions 19-24

How important are each of these Issues related to health care reform?

Important

Somewhat
Important

Not
Impottam

Having the guarantee that your insurance cannot be cancelled
if you change jobs, become ill. or use health care services often

82.0%

10.5%

4.8%

Reforming the medical malpractice system by limiting lawsuit
awards and insurance costs to help reduce doctor fees?

73.7%

18.8%

3.3%

Being able to deduct all of your premium costs
from your federal income taxes

60.7%

27.6%

9.5%

Having a choice of different health plans and providers

53.4%

37.1%

6.8%

Lowering your current out-of-pocket medical expenses

50.1%

36.8%

9.8%

Table 3— Questions 19-24

Questions 19-23. Tm going to read you jive
issues for reforming our health care system. For
each, please tell me how important these issues

are to you. The first one is . Is that very

important, somewhat important or not
important? (Issues are listed in chart above.)
Question 24. Of those that you said were very
important (READ LIST), which one do you think
is most important?

More than four out of five survey
respondents say that having guaranteed
insurance — no matter if you change jobs, get
sick, or use medical services often — is a very
important element in health care reform.

Next highest — ^with nearly three-quarters of
respondents saying it is very important — is
reforming the medical malpractice system to
lower doctors' fees.

Lowest of the five Usted issues was
"Lowering your current out-of-pocket medical
expenses," but still more than one-half of
respondents said that was very important.

The chart on the next page shows the result
when respondents were asked to name the
single most important element. The table
above shows the responses to each of the five
elements.

There was one difference between men and
women in response to this series of questions.
Women are more likely to say that having a
choice of health plans and providers is very
important (60.2%) than are men (43.6%).

Communicating lor Agriculture Survey.

313

Those who voted for Ointon or Perot in '92
give "Guaranteeing that your insurance
cannot be cancelled" as their first choice
among these priorities. Those who voted for
Bush list 'Reforming malpractice" as their top
priority. Those who voted for Perot arc
somewhat more likely to rate "Full deduction
for medical insurance payments on income
taxes" as most important than those who
voted for either Bush or Ginton.

►

Communicating for Aghculture Survey

314

IRA-Type Health Care Account

Question 25

Do you favor an IRA-typa program that would offer lower premiums, but
higher out-of-pocket costs for routine medical expenses?

14%

.^)-

D Favor IRA-IIke account
B Oppose IRA-IIke account
■ other/don't know

Question 25. There have been several health
care reform ideas that have been suggested. One
of these ideas is a plan that allows you to put a
portion of the mor\ey you now spend on health
insurance into a savings account like an IRA.
This money would be tax-free but could be used
only for medical expenses. Your insurance
premiums would be lower, but it would require
you to pay out of your pocket for routine medical
expenses. Would you favor or oppose this plan?

A bout one-half of respondents say they like
XI the idea of an IRA-type account. Just
more than one-thitd oppose the idea.

More than one in ten report they "Don't
know."

Communicating for Agriculture Survey

315

Questions 1-4, 26-28. Danogreqihic questions
including health insurance status, who provides
coverage, number of family members covered
under plan, political affiliation, presidential
choice in 1992, and gender.

Selected Demographics of Respondents

Questions 1-4 & 26-28

More than nine in ten farm owners/
operators in this survey have health
insurance, as shown in the chart on the next
page. Of the 6% that don't have insurance,
three-quarters say it is because insurance is
loo expensive.

Almost one-half of the survey respondents
have their own individual insurance plan.
About one-quaner have a plan through an
employer of one of the family members.
Although only 7% reported they have an
"Association plan," industry figures show a
much higher percentage. It is believed that
many of the plans reported as "Individual"
probably aresome type of association plan.

A majority of the survey respondents have
one or two family members covered under
their plan. The median response for this
question is in the "two faniily members
covered" category. About one in seven of the
survey respondents are covered by Medicare.
Less than one in ten have an association plan.
More than one-third of survey respondents
report ihcy are "Independent" when asked
their political affiliation. Sbghtly more than
one-quarter say they are Democrats, and just
more than one-third report they are
Republicans. In the 1992 election, about three
in ten voted for Bill Clinton and just more
than one-third voted for George Bush. About
one in seven voted for Ross Perot

Six in ten of the survey respondents were
women. The screening question used to select
survey partidpanu asked
for "The person that makes
the majority of health care
decisions for the
household." The percenuge
of women is about the same
as in other surveys in which
the same screening question
was used.

Communicalmg forAgricutu^ Survey

316

Dtaa, h.«. naaHh ln.ur.nea

■ no, no biauranea

■ Othar/den-l know

«3%

^g~^'

Dcllnlon

■ Su.h

-iv'

■ Parot
DO«har/doni knew

34%

Who do you rac

alva your h

nca covaraga Ironi?

14*^

• %

25%

D Employar

S^ira«i

■

H|H

■■

■ A»oeU.lon pun

^^f

■

45%

D Uadle.ra

D Othar/dont know

34%

D Oamoerat

■ lnd.pand.nt
DOth.r/dont know

Communicating for Agriculture Survey

317
Chairman Stark. Dr. Ehrenkranz.

STATEMENT OF RICHARD A. EHRENKRANZ, M.D., PUBLIC
POLICY FELLOW, OFFICE OF GOVERNMENT AFFAIRS.
MARCH OF DIMES BIRTH DEFECTS FOUNDATION

Dr. Ehrenkranz. Mr. Chairman, members of the subcommittee,
I am Dr. Richard Ehrenkranz. I am pleased to appear before you
today on behalf of the March of Dimes Birth Defects Foundation.

Currently, I am a March of Dimes public policy fellow, while on
sabbatical leave from Yale University School of Medicine, where I
am a professor of pediatrics, obstetrics and gynecology, and practice
at the Children's Hospital at Yale-New Haven Hospital as clinical
director of the Newborn Special Care Unit.

The 100 chapters and 1 million volunteers of the March of Dimes
share your concern about the growing number of uninsured Ameri-
cans and the increasing cost of health care. We commend you for
your long commitment to improve the U.S. health care system and
nope that your deliberations will lead to a speedy enactment of
health care reform.

The mission of the March of Dimes is to improve the health of
babies by preventing birth defects and infant mortality. Thus, we
have a special interest in barriers to health care faced by millions
of American families who want to have healthy babies. We want
these families to have health security. It must be recognized that
any major changes in the health care system will have an impact
on the health of the 4 million babies born each year.

Health insurance is the first critical step to ensuring access to
care. As the number of uninsured has grown in recent years,
women of childbearing age and children were among the most like-
ly to lose coverage. Even among those who were insured, preven-
tive services such as prenatal care and immunization are often left
out of private employer-based plans.

Experts tell us of the importance of quality maternity care that
begins with early prenatal care, but the Nation has made no
progress in this area since 1979. Each year, one-quarter of all preg-
nant women receive no prenatal care in the critical first 3 months
of pregnancy.

In addition, many of the sickest populations have been left be-
hind. For example, birth defects are often considered, "preexisting
conditions," and infants are then excluded from insurance plans. If
health reform is not enacted, these children could be outside of the
system for their entire lives.

In my clinical practice as a neonatologist, I have cared for many
high-risk babies and know that appropriate care, both prenatal
and/or neonatal, delivered in a timely fashion can make the dif-
ference between life and death or prevent a lifetime of disability.

The Nation can afford a better system of care for mothers and
babies. The results of a recent study sponsored by the March of
Dimes and conducted by RAND found that we spend $27.8 billion
each year, less than 5 percent of total health care dollars, to fi-
nance maternity and infant care. However, a large portion of these
costs are for the care of sick babies. Refocusing our spending on
prevention will reduce health care costs and infant mortality. Un-
compensated care costs — and the government payments to offset

318

them — total $2.4 billion annually. With universal coverage, both
patients and providers would be better off. Families would have in-
creased access to care, and providers would be assured payment.

The March of Dimes does not endorse any one approach to health
care reform. We believe that any health care reform proposal
should: One, provide affordable and user-friendly health care cov-
erage for all pregnant women and infants; two, define a basic set
of benefits for pregnant women and children with emphasis on pre-
natal care and other preventive services; three, improve the supply
and distribution of maternity and pediatric providers; and, four,
contain mechanisms to coordinate funding streams, contain costs,
and assure quality to protect the health of mothers and infants.

You have asked us to share our views on the Clinton health re-
form plan. In many respects, the American Health Security Act fits
our criteria for effective reform. We are particularly pleased that
it provides coverage for the 9 million uninsured women of child-
bearing age. At the same time, we have some concerns.

First, while the proposed standard benefits package will be ade-
quate for the vast majority of pregnant women and infants, we are
concerned that all children with birth defects will not be covered
for the services they need.

Special services, such as physical therapy, are covered as
postacute care following "illness" or "injury." Birth defects do not
necessarily fall into either category. Therefore, the March of Dimes
urges that birth defects would be — should be explicitly included.

Service limitations for children with birth defects and other spe-
cial health care needs are also of concern. For example, durable
medical equipment, including prosthetic and orthotic devices, is
limited, with no customized devices being included. Adapted or cus-
tomized wheelchairs, communication devices, and prosthetics are
particularly important to children whose bodies are rapidly grow-
ing and changing. Therefore the March of Dimes urges you to en-
sure that customized equipment will be covered for children.

Briefly, other recommendations by the March of Dimes for im-
proving the Clinton health care reform proposal include: One, as-
suring financing and low-cost sharing for all maternity costs in-
cluding labor and delivery; two, mandate health education, includ-
ing smoking cessation, as a component of pregnancy-related serv-
ices; three, fully integrate Medicaid recipients into mainstream cov-
erage; four, include prenatal services for undocumented pregnant
women so as to improve the health of babies who would be bom
citizens; five, include a process to rapidly disseminate new proven
and cost-effective perinatal health interventions; and, six, provide
adequate funding for the Public Health Service access initiatives.

In conclusion, we understand that there are no easy answers to
the current crisis in health care. At the same time, we urge you
to act thoughtfully and expeditiously to ensure affordable, avail-
able, and appropriate health care for all Americans. Our Nation
cannot have the world's healthiest babies until our health care sys-
tem provides access for every woman and baby.

Thank you.

Chairman Stark. Thank you.

[The prepared statement follows:]

319

TESTIMONY OF MARCH OF DIMES BIRTH DEFECTS FOUNDATION BEFORE

THE U.S. HOUSE OF REPRESENTATIVES, WAYS AND MEANS COMMITTEE,

SUBCOMMITTEE ON HEALTH

Presented by Richard A. Ehrenkranz, M.D.

Public Policy Fellow

Office of Government Affairs

March of Dimes Birth Defects Foundation

Professor of Pediatrics and Obstetrics and Gynecology

Yale University School of Medicine and

Clinical Director of the Newborn Special Care Unit

Children's Hospital at Yale-New Haven

New Haven, Connecticut

October 21, 1993

My name is Dr. Richard Ehrenkranz. On behalf of the March of Dimes Birth
Defects Foundation, I am pleased to appear before you as a long time volunteer and
former research grantee. Currently, I am a March of Dimes public policy fellow while
on sabbatical leave from Yale University School of Medicine, where I am a Professor of
Pediatrics and Obstetrics and Gynecology and practice at the Children's Hospital at Yale-
New Haven Hospital as Clinical Director of the Newborn Special Care Unit.

The March of Dimes, embodied by 100 chapters and one million volunteers,
shares the concern about the growing number of uninsured Americans and the increasing
cost of health care being expressed by other voluntary health organizations and
professionals, as well as business, labor, and elected leaders. We commend you for your
long commitment to improving the U.S. health care system and hope that your
deliberations will lead to speedy enactment of health care reform.

The mission of the March of Dimes is to improve the health of babies by
preventing birth defects and infant mortality. Thus, we have a special interest in the
barriers to health care faced by millions of American families who want to have healthy
babies. We want these families to have health security. It must be recognized that any
major changes in the health care financing system will have an impact on the health of
the 4 million babies born each year.

WHAT IS THE PROBLEM?

Experts tell us of the importance of quality maternity care, that begins with
prenatal care in the first three months of pregnancy, but the nation has failed to heed the
call to ensure access for all women.

o The nation has made no progress in improving early prenatal care use since 1979.

Each year one-quarter of all pregnant women receive no prenatal care in the
critical first three months of pregnancy, and more than 90,000 babies are bom
without benefit of any prenatal care visits ~ this means that their mothers did not
see a health provider before arriving at the hospital to give birth.

Insurance is the first critical step in assuring access to .services. As the number of
uninsured has grown in recent years, women of childbearing age and children were
among tho.se most likely to loose coverage.

o Despite recent expansions of Medicaid, 400,000 pregnant women have no health

insurance, public or private. '

Nearly 9 million women of childbearing age (18-44 years) have no health
insurance ~ this figure includes 6 million women who work. ^

Even among the insured, preventive services such as prenatal care and

320

immunization are often left out of private, employer-based benefit packages.

o An estimated 5 million women have private health insurance which does not cover

the complete maternity package, including both prenatal and birth services. '

o Half of private, employer-based indemnity plans do not provide coverage for
immunization services. *

Many of the sickest populations have been left behind. For example, because
birth defects are often considered "pre-existing conditions," infants are then excluded
from insurance plans. For those infants with major birth defects who survive, coverage
may not be available for care that could prevent or limit disabilities. If no health reform
plan is enacted, these children could be outside of the health insurance system for their
entire lives. In my clinical practice as a neonatologist, I have cared for many high risk
babies and know that appropriate care —both prenatal and/or neonatal- delivered in a
timely fashion can make the difference between life and death or prevent a lifetime of
disability.

WHAT DOES THE NATION SPEND ON MATERNITY AND INFANT CARE?

The results of a recent study ' (sponsored by the March of Dimes and conducted
by RAND) underscore the impact of health care financing on access to maternity and
infant care. RAND found that:

Only a small percentage of total health costs are spent on maternity and infant

care — $27.8 billion or less than 5% of total health care spending. Much of
today's costs are for care of sick babies. Refocusing our health spending on
prevention will reduce health care costs and infant mortality.

o Uncompensated care costs - and the government payments to offset them - were

$2.4 billion in 1989, mainly for deliveries and care of sick newborns. With
universal coverage, both patients and providers would be better off - women
would have increased access to care and providers would be assured payment.

Families pay over $3 billion out-of-pocket for maternity and infant care each year.
That $3 billion is the families' share of care for pregnant women and their 4
million babies. This is an enormous burden, particularly since most families
having babies are young and have low or moderate incomes.

WHAT MUST BE DONE?

The March of Dimes has endorsed no one approach to health care reform. We
recognize that improving our complex health care system will, of necessity, include a
range of strategies to address the barriers and high costs we face today.

The March of Dimes Birth Defects Foundation has a special interest in access
barriers faced by millions of American families who want to have healthy babies. The
March of Dimes believes that a health care reform proposal should: 1) provide
affordable and user-friendly health care coverage for all pregnant women and infants; 2)
define a basic set of benefits for pregnant women and children, with emphasis on
prenatal care and other preventive services; 3) improve the supply and distribution of
maternity and pediatric providers; and 4) contain mechanisms to coordinate funding
streams, contain costs, and assure quality to pptect the health of mothers and infants.

VIEWS ON THE CLINTON HEALTH REFORM PLAN

You have asked us to share our views on the Clinton health reform plan. In a
many respects, the American Health Security Act fits our criteria for effective reform.
We are particularly pleased that it provides coverage for the S million uninsured women
of childbearing age. At the same time, we have some concerns about how the plan will
protect the health of babies.

321

Bcncnts: Based on the descriptions we have seen to date, the basic benefits
package will be adequate for the vast majority of pregnant women and infants.
However, we have two concerns: 1) Will all children with birth defects qualify for the
specialized services they need? and 2) Given that health education is optional, will
health plans consistently provide these needed services for pregnant women?

o Special services (such as outpatient rehabilitation, extended care, or home health)

are covered as post-acute care following "illness or injury." Birth defects
(congenital conditions) do not necessarily fall into either category. The March of
Dimes urges inclusion of language that would specifically include birth defects .

Service limitations for children with birth defects and other special health care
needs also are of concern. For example, durable medical equipment (including
prosthetic and orthotic devices) are limited - with no customized devices being
included. Adapted or customized wheelchairs, communication devices, and
prosthetics are particularly important to children whose bodies are rapidly growing
and changing. The March of Dimes urges inclusion of language that would ensure
that customized durable medical equipment would be provided to children with
specialized needs.

o Health education in the form of nutritional counseling and, for those who need it,

smoking cessation are critical preventive services during pregnancy. For example,
an estimated 25% of low birthweight could be prevented with cost-effective
smoking cessation programs. Yet the proposal permits, but does not mandate,
health plans to offer such cour.se.s. The March of Dimes believes that health
education, including smoking cessation, should be a mandatory component of
pregnancy-related services .

Cost sharing: The overall approach to cost sharing seems fair to Americans
covered under the comprehensive benefit package. However, we remain concerned that
while prenatal care will be exempt from cost-sharing, there may be co-payments and
deductibles related to delivery and birth. While low cost-sharing plans will have no co-
payments for inpatient services, it is not clear that all pregnant woman will have the
option to be enrolled in such a plan. This question needs attention, particularly since
obstetric and newborn costs were a key contributor to uncompensated care in the 1980s.

o Services at the time of birth accounted for an estimated 25% of uncompensated
care in the mid-1980s. Medicaid coverage for low income pregnant women
alleviated some of this burden, and states' uncompensated care pools offset these
costs in other ca-ses.

o Yet even by 1989, uncompensated care for maternity and infant care (and

government mechanisms to offset them) totaled $2.4 billion - with delivery and
neonatal care accounting for $1.9 billion of this amount. '

The March of Dimes believes that health care reform should assure financing for all
maternity costs, including labor and delivery.

Medicaid: In recent months, the March of Dimes and other groups worked with
you to guarantee that women and children in the Medicaid program would be
"integrated" into mainstream care under the Clinton plan. You have provided some
assurances that there would be no lesser payments and discrimination related to
Medicaid. However, we remain concerned that the propo5;ed approach may leave an
incentive to remain on welfare rather than go to work. The March of Dimes urges full
integration of the Medicaid population.

Undocumented pregnant women : The Clinton Administration has decided that
undocumented persons will not be entitled to a health security card ~ this is a particular
problem with undocumented pregnant women whose infants will be U.S. citizens. It is
not clear whether their employers will be prohibited from contributing or from voluntarily
purchasing coverage for undocumented workers. It is a positive step that current

322

protections for emergency services - including delivery and birth -- would continue in
Federal law. The March of Dimes urges incliision of prenatal services for undocumented
pregnant women to improve the health of babies who would be horn citizens and have
health security protections.

Dissemination of new knowledge: New medical technology (such as neonatal
medicine, fetal therapy, and gene therapy) has saved the lives of millions of babies, with
most growing to be healthy and contributing citizens. We are pleased that the Clinton
Health Plan includes emphasis on health research in perinatal health and birth defects.
The promulgation of information about best practices and effective treatment is equally
important to improving health outcomes. We are concerned that the National Quality
Management Program may: focus only on cost-quality tradeoffs; may delay dissemination
of effective new interventions with bureaucratic process; or spend too little time on
perinatal and birth defects issues. The latter is of particular concern since adult chronic
disease research and prevention currently have dominance. The March of Dimes
recommends a process to rapidly disseminate newly proven and cost-effective perinatal
interventions.

Public health and essential providers: The concept of a Public Health Service
Access Initiative is a very positive and fon,vard looking approach. Accessible health care
must be affordable, available, and appropriate - thus, coverage alone will not guarantee
access. We are pleased that the Clinton plan focuses on school health, the National
Health Service Corps, capacity expansion, and core public health functions (e.g. data and
surveillance, infectious disease control). We understand that the Clinton plan would give
states the resources and flexibility to design their own approach to "enabling services"
(e.g. outreach, case management). The March of Dimes is concerned that a block grant
strategy could undercut current community-based efforts to reach families and children at
social and medical risk .

CONCLUSION

We understand that there are no easy answers to the current crisis in health care.
However, when we fail to ensure access to care for pregnant women and children, we
miss opportunities to prevent costly health problems. When families delay preventive
care, society pays.

Prenatal care has been found to be effective and cost effective ~ saving $3 for

every $1 invested by improving infant health and reducing neonatal intensive care
costs.

Smoking cessation programs for pregnant women can save $6 for every $1

invested ~ doubling the savings of prenatal care. Smoking during pregnancy
nearly doubles the risk of having a baby born too small, and mothers who smoke
account for 28% of low-birthweight births.

We urge policy-makers to act thoughtfully and expeditiously to ensure affordable,
available and appropriate health care for all Americans. The nation cannot afford to
delay health care reform. Every day 11,000 babies are- born, 800 have low birthweight,
410 have a birth defect, and over 100 die. '' Most American women experience
pregnancy during their lives, with nearly 7 percent of women of childbearing age giving
birth each year. Our nation cannot have the world's healthiest babies until our health
care system provides access for every woman and baby.

323

REFERENCES

1. National Commission on Children. Deyoiul Rhetoric: A new American agenda for
children and families. Washington, DC, 199].

2. Snider, S. Sources of Health Insurance and Characteristics of the Uninsured: Analysis of
the March 1992 Current Population Survey. Employee Benefit Research Institute,
Washington, DC, 1993.

3. Gold RB, Kenney AM, and Singh S. Blessed Events and the Bottom Line: Financing
maternity care in the United States. Alan Guttmacher Institute, New York, NY, 1987.

4. National Vaccine Advisory Committee. Access to Childhood Immunization Services.
U.S. Public Health Service, Washington, DC, 1992.

5. Long SH, Marquis MS, Harrison E. 'The Financing of Perinatal Care." In Press,
RAND, Washington, DC, 1993.

6. RAND. Op Cit .

7. Petrini, J, Damus K, et. al. StatBook: Statistics for Healthier Mothers and Babies.
March of Dimes Birth Defects Foundation, White Plains, NY. 1993.

324

Chairman Stark. Mr. Bross.

STATEMENT OF DANIEL T. BROSS, EXECUTIVE DIRECTOR,
AIDS ACTION COUNCIL

Mr. Bross. Mr. Chairman, thank you for giving the AIDS Action
Council this opportunity to contribute to this important hearing on
consumer perspectives on President CHnton's national health care
reform proposal.

AIDS Action Council serves as the Washington representative of
over 1,000 community-based organizations providing services to
people living with AIDS and HIV.

AIDS Action Council is devoted exclusively to advocacy for effec-
tive national AIDS and HIV policy.

Over 1 million Americans are currently living with HIV infection.
More than 194,000 Americans have died. We will never know how
many of those individuals died prematurely or experienced unnec-
essary suffering because of the system's failure to provide appro-
priate medical management of HIV disease.

A dramatic overhaul of our current health care delivery system
is an imperative for people living with HIV and AIDS in this coun-
try and for an effective national response to the AIDS epidemic.

People living with AIDS are poorly served by the current system.
Forty percent of people with AIDS are Medicaid recipients, and at
least 30 percent are uninsured. Even for those who are insured,
discrimination by insurers, caps on overall care for AIDS treat-
ment, preexisting condition exclusions, and a range of other com-
mon practices make health care for Americans living with AIDS a
frustrating, financially debilitating, and sometimes life-threatening
experience.

Some have argued that the AIDS epidemic has presented our
current health care system with its greatest challenge. If that is so,
then the current health care predicament for people living with
AIDS and the broad-based public outcry for national reform offer
a ringing indictment of the system's inability to meet that chal-
lenge.

The American Health Security Act of 1993 would make health
care a right, rather than a privilege, for every American. It is re-
sponsive to many of the problems people with AIDS currently face
in the delivery of their health care — preexisting condition exclu-
sions, disease specific caps, and experience rating.

The Clinton plan calls for a comprehensive benefit package, and
the nature of HIV disease requires access to a full range of health
care services to ensure quality of care.

AIDS Action Council is committed to effectively representing the
health care concerns of people living with AIDS during this na-
tional health care reform debate. In that regard, we offer strong
support and will fight to preserve key elements of the Clinton plan
which are critical to people living with AIDS, just as we will advo-
cate for a number of essential improvements in the legislation
when it finally reaches Capitol Hill.

Based on the elements of the American Health Security Act
which have been released, we offer our strong support for a number
of components of the administration's proposal, including: Univer-
sal coverage by 1997; prohibition against preexisting condition ex-

325

elusions, disease specific caps, and experience rating; the port-
ability and comprehensiveness of the benefits package; limitations
on copayments and out-of-pocket maximums; risk adjustment by
disease and by socioeconomic status for payments to providers; lim-
its on premium increases; employer mandate; and single-payer op-
tion for States.

From the perspective of the AIDS community, these elements
and others described in our full statement are essential to the in-
tegrity of the Clinton plan and its promise of health security for all
Americans.

Health security for people living with AIDS and HIV will only be
realized if each plan is required through clear and enforceable pro-
visions to provide the continuum of services needed for the proper
medical management of HIV disease.

Looking at the proposal through the lens of the HIV epidemic,
we do have concerns about some elements in the plan, seek clarity
about others, but stand ready to work for essential improvements.

It is our firm belief that any national health care reform plan en-
acted by the Congress can be judged by its responsiveness to the
health care needs of Americans living with HIV.

Let me briefly enumerate a number of AIDS Action Council's
concerns regarding the Clinton plan:

Prescription drug coverage. It is essential that coverage include
the so-called off-label use of drugs. Due in part to the limited num-
ber of standard treatments for HIV disease and its related oppor-
tunistic infections, people with HIV are often heavily dependent on
the off-label use of medication.

OB/GYN services. We support OB/GYN services as part of the
preventive health service package but argue for annual Pap smears
for all women instead of the 3-year intervals currently rec-
ommended in the Clinton plan.

Substance abuse and mental health service treatment. While we
applaud the inclusion of substance abuse treatment and mental
health services in the basic benefit plan, the Clinton proposal falls
far short of meeting the substance abuse treatment and mental
health care needs of people living with AIDS and HIV. A 50 per-
cent copayment for outpatient mental health and substance abuse
services in addition to the $1,500 out-of-pocket expenses and the
premium copayments which most people with HIV will incur, could
prove to be financially prohibitive.

And, finally, Mr. Chairman, we have grave concerns about the is-
sues of confidentiality and antidiscrimination.

Since the beginning of the AIDS epidemic, people living with
AIDS and HIV have faced discrimination in all aspects of their
lives, from the workplace to their living place and even in their re-
ligious communities. The last place they should face discrimination
is in the health care setting. But tragically, they have. Whether it
is insurers or employers arbitrarily capping benefits or doctors,
dentists, and hospitals refusing medical treatment, the American
health care system not only fails to adequately care for people liv-
ing with AIDS, it contributes to their premature death.

Thank you.

[The prepared statement follows:]

326

TESTIMOhfY OF DANIEL T. BROSS
EXECUTIVE DIRECTOR OF AIDS ACTION COUNCIL

Thank you for offering AIDS Action Council the opportunity to contribute to this important
hearing on consumer perspectives on President Clinton's national health care refonn proposal.
AIDS Action Council serves as the Washington representative for over 1,000 community-baied
organizations providing services to people living with HTV/AIDS. AIDS Action Council is
devoted exclusively to advocacy for effective national HIV/ AIDS policy.

Over one million Americans are currently living with an AIDS diagnosis. More than 194,334
have died. We will never know how many of those individuals died prematurely or experienced
unnecessary suffering because of the failure of our health care system to provide appropriate
medical management of HTV disease. A dramatic overhaul of our current health care delivery
system is an imperative for Americans living with HTV/AIDS and for an effective national
response to the AIDS epidemic. People living witii HTV/AIDS are poorly served by the current
system. Forty percent of people with AIDS are Medicaid recipients and at least 30 percent are
uninsured. Even for tiiose who are insured, discrimination by insurers, caps on overall care for
AIDS treatment, pre-existing condition exclusions and a range of other common practices make
health care for Americans living with HTV/AIDS a frustrating, financially debilitating and
sometimes, life-threatening experience. Some have argued that the AIDS epidemic has presented
our current health care system with its greatest challenge. If that is so, then the current health
care predicament of people living with HTV/AIDS and the broad-based public outry for national
reform offer a ringing indictment of the system's inability to meet that challenge.

The American Health Security Act of 1993 would make health care a right, rather then a
privilege, for every American. The promise of the President's proposal is to provide all
Americans with comprehensive, affordable and appropriate health care by 1997. It is responsive
to many of the problems people with HIV/AIDS currendy face in the delivery of their health
care — pre-existing condition exclusions, disease-specific caps, experience rating. The Clinton
plan calls for a comprehensive benefit package, and the nature of HIV disease requires access
to a full range of health care services to ensure quality care.

AIDS Action Council is committed to effectively representing the health care concerns of people
living with HIV/ AIDS during this national health care reform debate. In that regard, we offer
strong support and will fight to preserve key elements of the Clinton plan which are critical to
people living with HIV/AIDS just as we will advocate for a number of essential improvements
in the legislation when it reaches Capitol Hill.

Based on the elements of the American Health Security Act which have been released, we offer
our strong support for the following components of the Administration's proposal:

• Universal coverage by 1997

• Prohibitions against pre-existing condition exclusions, disease-specific caps and experience
rating

• Portability and comprehensiveness of benefit package - prescription drugs, ob-gyn
services, home health care, hospice care, substance abuse treatment, mental health
services, and prescription drug coverage for Medicare recipients are all crucial covered
services for persons with HTV/AIDS.

• Subsidies for low-income persons

• Inclusion of Medicaid recipients with access to same benefits and providers as other
Americans.

• Limitations on co-payments and out-of-packet maximums

• Risk-adjustment by disease and by socioeconomic status for payments to providers

• Limits on premium increases.

• Preservation of Ryan White Care Act and other public health categorical programs which
serve people with HIV/ AIDS.

• Employer mandate

• Single payer option for sutes

From tiie perspective of the HIV community, these elements are essential to the integrity of the

327

Clinton plan and its promise of health security for all Americans. Health security for people
living with HTV and AIDS will only be realized if each plan is required, through clear and
enforceable provisions, to provide the continuum of services needed for the proper medical
management of HTV disease.

Looking at the proposal through the lens of the HTV epidemic and those who live with
HTV/ AIDS as well as those who work to provide services to its victims in the community on the
front lines, we have concerns about some elements in the plan, seek clarity about others, and
stand ready to work for essential improvemenu. It is our firm belief, that any national health
care reform plan enacted by the Congress can be judged by its responsiveness to the health care
needs of Americans living with HTV/AIDS.

Let me briefly enumerate a number of AIDS Action Council's concerns with components of the
American Health Security Act as it has been publicly outlined. We have already shared these
concerns with Administration officials and are hopeful that clarity or changes will be forthcoming
in a number of areas when the legislation is introduced.

Benefit Package

Prescription Drug Coverage. It is essential that coverage include the use of so-called "off-label"
drugs. Due in part to the paucity of standard treatments for HTV disease and its related
opportunistic infections, people with HTV are often heavily dependent on the use of "off-label"
medications. We are also concerned that allowing individual health plans to establish drug
formularies and drug utilization reviews will result in this benefit being overly circumscribed.
Ob-gyn services - We support Ob-gyn services as part of the preventive health service package
and argue for annual pap smears for all women instead of the three year intervals currently
recommended in the Clinton plan. HIV in women frequendy manifests itself in gynecological
complications which will be identified and treated more quickly with annual pap smear
screenings.

Substance abuse treatment and mental health services . While we applaud the inclusion of
substance abuse treatment and mental health services in the basic benefit plan, the Clinton
proposal falls short of meeting the substance abuse treatment and mental health care needs of
persons living with HTV/AIDS. People with HTV/AIDS ftequenUy require both substance abuse
treatment and mental health care. Further, a fifty percent co-payment for outpatient mental health
and substance abuse services in addition to the $1500 out-of-pocket expenses and premium co-
payments which most people with HTV will incur, could prove to be fmancially prohibitive.
Home health care. We need clarity to ensure that the disability criteria for program participation
includes individuals living with HTV/AIDS and that the copayment structure for this service is
not a major barrier to participation.

Medicaid and Low-Income Populations

Medicaid. The Clinton proposal would ensure that Medicaid recipients who receive cash
assistance will continue to receive wrap-around benefits, which are essential to enabling people
to access health care. However, under the draft Clinton plan, medically needy Medicaid
recipients, including a significant proportion of Medicaid recipients with HIV/AIDS would not
We believe that Medicaid recipients should not experience a loss of benefits under national health
care reform. Wrap-around services and all benefits and services currenUy available to recipients
under existing state waivers should be maintained.

Low-income . We believe that there should be caps on the percent of income that an individual
can be required to pay for his or her premium, to ensure that low-income individuals are able to
afford health care coverage. Caps on premiums, premium subsidies, and other mechanisras for
ensuring affordable health care coverage should be available to all low-income persons, especially
those with disabilities.

Anti-Discrimination/Confidentiality

Since the beginning of the AIDS epidemic, people living with HTV/AIDS have faced
discrimination in all aspects of their lives, from the workplace to their living place and even in
their religious communities. The last place they should face discrimination is the health care
setting. But tragically they have. Whether it is insurers or employers arbitrarily capping
benefits, or doctors, dentists and hospitals refusing medical treamient; the American health care

system not only fails to adequately care for people living with AIDS, it contributes to their
premature deaths. The passage of the Americans with Disabilities Act was a significant moment
for our community, bringing great hope that such discrimination would end. Just two weeks ago,
the Department of Justice brought two cases charging dentists with violations of the ADA by
refusing to care for people with HIV/AIDS. The setbacks people living with AIDS faced in the
wake of the McGann decision and the uncertainty of how discrimination in health care benefits
will be remedied under the ADA convince us that any efforts to reform the health care system
in this country will fail if guarantees of anti-discrimination are not explicitly set out in the law
and enforced in practice. As we noted previously, the incentives to deny health care coverage
to Americans on the basis of their health condition, socio-economic status, race, or gender,
particularly in managed care systems, will continue to exist, whether overtly or not, even if the
essential elements we have spoken about today are included in health care reform. Therefore,
it is imperative that Congress specifically provide anti-discrimination protections to assure that
all Americans will have quick and meaningful recourse to remedy discrimination based on health
care condition, socio-economic status, race or gender that prevents them from getting appropriate
and affordable health care.

Americans must also be assured that their medical records will be kept confidential, and that the
data collection plans for utilization reviews, report card preparation, and other purposes will
utilize only blinded data. Without such confidentiality protections, it will be impossible to
provide meaningful anti-discrimination protections for people.

Preservation of Vital Public Health Categorical Programs

The Administration's bold plan to integrate all Americans, including poor individuals and other
traditionally underserved populations into the mainstream health care delivery system is a
laudable, but untried goaL From the perspective of the HIV community, it is imperative that
federal safety net programs, including the Ryan White Care Act, the substance abuse block grant,
federal tuberculosis initiatives and federally-funded HIV prevention programs remain intact
during the transition to national reform and until it can be clearly demonstrated that the health
alliances can provide the services currently provided by these programs. Many of these programs
provide services which will not be available through the health care system. Case management,
and adult dental services are just two of the services currently provided under Ryan White which
will not be available through health plans. The substance abuse block grant is the primary source
of funding for long-term community based residential care for drug dependent persons, including
women with dependent chfldien. The substance abuse benefit simply will not provide that
duration or intensity of care and it would be shoit-sighted to fmance the substance abuse/mental
health benefit with federal substance abuse block grant funds. AIDS Action will work to preserve
and enhance funding for public health programs critical to the well-being of persons living with
mV/AIDS.

Conclusion

Despite the questions and cautions we have raised about the Clinton plan, we welcome the
opportunity to support the Administration's eiTort to work for dramatic reform of the health care
system. The stakes are very high and opposition to reform is formidable. The leadership of the
forces opposing major change are familiar to the HTV community. From the insurance industry
to the new unholy, alliance between the Christian Coalition and the National Federation of
Independent Businesses, the call for the status quo or for minor tinkering with the system comes
from those who have profited from building barriers to health care and who have offered people
with AIDS moral condenmation instead of vital health care services. The American Health
Security Act moves the national health care reform debate to a new moral high ground by
presenting comprehensive health care as a fundamental right of citizenship, regardless of race,
gender, employment status, health or HIV status. It is our intention to do all we can to see that
meaningful reform is enacted and that the special needs of Americans living with HTV and AIDS
are heard and responded to in the upcoming debate.

329

Chairman Stark. Thank you.

Unfortunately, Dr. Ehrenkranz, you have just made a liar out of
me. But maybe not all is not lost. I have, for I will bet you, 5 years
been using an anecdote; and it appears that I just made it up. But
sometimes those are the best kind to illustrate the conundrum we
are in on this issue of costs, and saying to people it doesn't really
make much difference what the President estimates the costs are
going to be because, in the final analysis, we have to use the num-
bers that the Congressional Budget Office gives us. That is the law.

So even though we don't like CBO estimates — and I say one of
the things that is difficult for people to understand, including my-
self, is that, and I have used this illustration, that for every dollar
I spend in prenatal care, I am going to save $5 in pediatric care
over the next 5 years.

And, you know, nobody's ever stood up and challenged me until
today. But nonetheless, what happens is the CBO says, we may
agree with you, but we can't score you, as they say, for that $5 of
savings because there is no requirement in law that we spend it.
And we can only get a savings if we reduce a spending that is man-
dated.

It sounds dumb, but Mr. Thomas and I have to both live by those
rules, and sometimes it hurts his program, sometimes it hurts
mine. But you, today, unfortunately, have said it is only $3 in sav-
ings for every dollar. I will still take that as a muted endorsement.
And now I will use the $6 for every dollar if we get them to quit
smoking. That is even more dramatic, and I will now quote you
from now on to say how much we can save.

They still won't score me, but it is a much more draconian sav-
ings, and I thank you for that contribution to trying to get more
preventive care involved.

As you have reviewed the President's plan, are you comfortable
that pregnant women will get the kind of prenatal services you feel
they need? Or is it not addressed at all?

What is your comfort level in that regard?

Dr. Ehrenkranz. We are pleased with many of the aspects of the
plan, specifically its universality, the portability.

We have some concerns that if the Medicaid population is not
fully integrated into the plan, women and, therefore, children will
lose services and benefits.

Chairman Stakk. Not only not fully integrated, I mean they are
going to eliminate Medicaid as an entitlement.

Now, how do they do that? They say, well, we will have entitle-
ment for the poor and low-income, but it will be capped. So it is
an entitlement until you hit the cap; and from then on, we have
to go and get an appropriation.

And I want to tell you, getting an appropriation to help the poor
and the indigent is a tough row to hoe in this institution.

Dr. Ehrenkranz. In addition, I think we want to be careful that
we are not maintaining a dual class system, where women are em-
barrassed or feel that they are looked down upon when going for
and receiving care.

Chairman Stark. The President's plan is a hornbook on how to
establish a dual-class system and build incentives into the dual-
class system to increase the disproportion in the kind of coverage.

330

If you are going to write a way to impact the poor and help the
rich get better care, you couldn't have done a better job than Ira
Magaziner did for the President.

So there are a few minor corrections that we have to make.

Let me ask Mr. Smedsnid, you represent small business people
in the rural community?

Mr. Smedsrud. Essentially farmers.

Chairman Stark. I had the pleasure of joining the head of the
NFIB at a meeting recently. I think it was the white supremacist's
annual convention, but other than that it was a meeting at which
we discussed health care. I brought to his attention, which he hotly
denied, but I have a copy, that in May 1992 the members of the
NFIB were polled and they were asked, among other things, this
question. Would you support having to provide health insurance to
all employees even if you did not have to pay any of the cost?

OK Would you support having to provide health insurance to all
of your employees even if vou did not have to pay any of the cost?

Sixty percent said no. Eleven percent were undecided. And there
were 29 percent of those good folks who did the right thing, in my
opinion, and said that would be OK

Now, how do you suppose your members would come down on
that same question?

Mr. Smedsrud. Our members would probably — most of our mem-
bers don't have very many employees, if they have employees at
all, one or two.

Most of those

Chairman Stark. And they might be family members.

Mr. Smedsrud. And they may be family members.

We did the survev of farmers, which is attached to my statement.
About two-thirds or those responding said they would not be willing
to pay for a mandate.

They were told, I think, that the cost of a mandate was 8 to 10
percent. We did this before the 7.9 percent or the 3.5 percent be-
came public. Let me say we are not going to be representing
NFIB's position on that.

I will point out — and I use the phrase "intellectual disconnects" —
one of the problems with the way the mandates work in the Clin-
ton plan is that it is so difficult to understand what you may or
may not pay.

For example, a sole proprietor would pay one piece, 7.9 percent,
plus the employee share on himself. If you were a subchapter S cor-
poration and you had undistributed income, you didn't pay yourself
a salary, but you had undistributed income, none of that would be
counted. And it goes on and on like that.

Chairman Stark. I understand. Let me try this on you, and your
opinion of how your membership would react. I believe that many
of my Republican colleagues like an individual mandate, the indi-
vidual should be responsible rather than business or organization.

But if I took the position — let's leave dependent children out of
this for a minute — that every one of your members had to have
health insurance, had to have some minimum benefit, let's say
about the Medicare level, and if they didn't have it they would be
billed $1,500 by the government — ^just to pick a number — that is 75
cents an hour on a 2,000 hour work year — and they would be given

331

it, you can go out and buy anyplace you want but if you don't have
it, by default, you get it from the Federal Government. And let's
say it is Medicare and you are billed $1,500. If you are poor or
under two times poverty, you are relieved from the $1,500.

How would they react to that? That is a pretty tough mandate.
You must have it, you can get it anyplace you want, but you have
to have this minimum level of benefit, that presumably you could
get for $1,500.

Mr. Smp:dsrud. Most of our members have insurance. Most of
our members I think recognize the responsibility to have insurance.
The thing we need to do in this country is move everybody toward
that recognition.

Chairman Stark. Would that kind of an edict trouble you?

Mr. Smedsuud. I am not sure if the number is the right number.
I think people are stepping up and are willing to pay something.
T think that is the sense of our members; that is the sense of a lot
of people in agriculture, that we all have to contribute in some
way.

The part of the problem we have is that it seems like now that,
the more you make, the less you pay; and the less you make, the
more expensive it is. And we have to even that out in some way.

And I go again to the question of the complexities on the way the
administration wants to even that out.

Chairman Stark. Well, although as we learn so often in this
committee, simple is not necessarily fair. And that is a problem
that we often have.

Mr. Bross, just a question. The major concern for AIDS patients
is the high cost of prescription drugs. Let's set aside for a minute
the restriction on drugs.

Do you think that the President's plan adequately addresses the
problem of prescription drug costs? And do you have any sugges-
tions you might offer in that area?

Mr. Bross. It is certainly an acknowledgment of the issue.
Whether it goes far enough would be a subject of debate. We are
continuing to work with members of the White House staff to pro-
vide them with the information that they need from our constitu-
ents so they can make that fair assessment.

But it is certainly a step in the right direction.

Chairman Stark. Would you have any confidence in a voluntary
system?

Mr. Bross. No.

Chairman Stark. Thanks.

Mr. Thomas.

Mr. Thomas. Thank you, Mr. Chairman.

I think it is useful, actually, to look at the poll Mr. Smedsrud
conducted among his folk. And you fmd on the last page that 93
percent of those in the poll currently have health insurance.

Mr. Thomas. About 6 percent don't. And 1 percent don't know for
sure. You are talking about a universe that feels a responsibility
even if it is out-of-pocket to in fact do that. It sounds to me like
a conservative, typical farmer.

And then take a look at what is the most important issue related
to health care reform to you. Number one, either very important,
or somewhat important, 92^2 percent of them having the guarantee

332

that your insurance cannot be canceled if you change jobs, become
ill or use health care services often. Thev are willing to pay for it,
but they are concerned about the availability. And the choice and
the quality issue is also clearly reflected in the policy in terms of
people wanting to make their own choice in defining what they pay
for their quality. I think this frankly is a bit more of a profile on
more than just the rural group that you have studied. It is much
more refiective of what is going on out there among the more folk
rather than fewer.

And interestingly enough, they threw in one question: Do you
favor an IRA-type program that would offer lower premiums but
higher out-of-pocket costs for routine medical expenses. Forty-nine
percent said yes. So half of them are willing to pay more out-of-
pocket if they gave them this kind of a structure, the key point
being that when you begin looking at the various plans to solve the
problem, you have really got to look at what the plans have in com-
mon and then understand what I think is becoming universal
agreement, and that is everybody is talking about that universal
coverage costs money, but even your folks think that the real prob-
lem is to make sure they have it available.

One of the things I have had a hard time doing with the Clinton
plan is taking a look at what they say they are going to do and
how they are going to do it, and figuring out why they had to put
some of the things in there that they did to bring about what they
said they were going to do.

You know, the National Health Board, the entire structure of the
alliances, I think we talked earlier today, if you essentially pull
those out, provide some other aspects to it, that gives you that
guaranteed package, but you can lock that in on a structural point
of view. I don't see not getting to their goals by not having those
components. In fact, by having those components, there is an enor-
mous cost to be paid, not just in terms of dollars and cents, but in
choice, innovation, in making things happen.

So in terms of your testimony, I can't, for the life of me, figure
out why you have to have their kind of an alliance mandated their
way to get the savings that they are talking about.

Obviously America is familiar with associations and cooperatives.
There are a number of ways to get them. The argument was that
voluntarily you can't make it happen. There are ways to mix and
match with government and the private sector working together to
create a number of universes, both government and private, to
guarantee that that occurs, rather than a uniform, single, man-
dated system, which I think is partly your concern.

Mr. Smkdsrud. Another point that comes out of the survey is the
question of who do you believe could best solve problems. Only 2
percent thought government, but for the private sector, that is only
about 30 percent thought they should leave it in the private sector.
You have to make changes to it. The voluntary alliances work if
you get rid of the idea of cherry picking, if you do some form of rat-
ing reform.

I was in Texas to give a speech to a farm group, and one farmer,
35 years old who is HIV positive, had some concerns about this
plan. This is a third-generation farmer. He had a plan that right
now pays $2 million lifetime maximum. The question he asked is.

333

"will I be guaranteed to continue my plan?" Our answer was, no,
you will not be guaranteed to continue the plan you now have. You
will be guaranteed something. You won't ever really know what it
is.

Granted, that is a lot better than the current situation for some-
body that doesn't have insurance — at least he gets something. But
for those that got, we don't really know what they are going to get.
And they are going to have to get rid of what they already have.

Mr. Thomas. The majority of Americans have insurance, so the
doubt created is in a political group who are going to be putting
pressures on this as more specifics come out. If we can do at the
national level the insurance reforms you indicated in terms of
small group reform, universal coverage, do something significant
and meaningful on malpractice, simplify the administrative struc-
ture, encourage other things, that there is a lot that is going on
now in the private sector that can be enhanced with this national
umbrella.

Dr. Ehrenkranz, let me reinforce the frustration the chairman
and I have the way this ridiculous process counts money. Every-
body knows that there is a cost-benefit ratio to preventive care in
a number of areas. And we are sitting here spending $1 and get-
ting zero in return.

I urged the First Lady to throw out the current budget process
and figure out a new way to do it so we could get credit for it be-
cause we could put together a much more realistic plan in terms
of what it costs and how much we get back.

But for all of us in this business, I want to share the frustration
that we will be putting things in a plan that we know will produce
money in a 5-year period, 10-year period, a lifetime. In addition, it
will create a better quality of life, and that we have to pay up
front, real dollars for every one them, and don't get any credit for
it in the system. That is really frustrating when you are trying to
put together a real -world package, because, "we have to deal with
real-world problems."

Finally, a specific concern I have in terms of particular groups,
and AIDS folks are one that concern me about the mechanism of
these regional alliances and how they are structured. To a certain
extent, although becoming less so, unfortunately, there are are nev-
ertheless concentrations of people who are HIV positive, and who
in fact have been diagnosed as having AIDS, not evenly disbursed
across the population.

One of my real fears is that as we get into this business of creat-
ing alliances, regional alliances, let's say in a State like California
where it is clearly going to be a sub-State set, it may or may not
be that consolidated metropolitan statistical area. You wind up in
a very real political fight akin to redistricting in terms of where
you draw the lines and in terms of who is going to accept the cost —
not so much the hidden cost, now the very real cost of these various
dependent populations.

Doctor, you have that same concern as well, and that is the last
thing we want — a structure that creates political footballs out of
real people in terms of where we are going to stick them under
what kind of a structure. And the way this is outlined

334

Chairman Stark. If the gentleman will yield, I am doubly wor-
ried because the insurance companies will all hire my colleague
who is an expert at gerrymandering.

Mr. Thomas. That is the last thing we want out of a plan that
advisedly says we are going to solve the problems, because the way
they have structured this creation of the alliance, the drawing of
the alliance, who is going to pay and how you are going to pay it,
almost guarantees that you are going to have these kinds of politi-
cal fights. Do you have any concern on that?

Mr. Bross. I think you have put your finger on our key concern.
The necessity to address risk-adjustment issues is key to making
this whole plan work. And be it cancer or heart disease or AIDS
or prostate cancer, whatever, it is important that the risk-adjust-
ment mechanism takes into account the concentration of people
with AIDS, in your specific example.

Mr. Thomas. It only increases when that universe becomes
smaller and less directly representative of the broader constitu-
ency.

The other problem I have with this plan is that basically it works
or doesn't work on risk adjustment. We just heard some pretty im-
pressive experts tell us that you can get 20 to 40 percent of the real
adjustment out of a risk-adjustment mechanism.

To me that is an extremely low percentage to invest this whole
new structure and mandate this whole new arrangement, and then
hope you get better than a 20 or 40 percent realignment to the
structure. You are going to deny people real programs if you don't
get it right. That is why I talk about keeping a private-sector op-
tion available and not imposing this current structure, because
frankly, the people who are supposed to be able to tell us how to
do risk adjustment basically tell us they don't know how to do risk
adjustment.

Chairman SlAiiK. Let me ask, if I may, if the gentleman has con-
cluded, both Dr. Ehrenkranz and Mr. Bross, and Mr. Smedsrud too,
I was unaware, reading the President's plan, that the alliances can-
not cut across State lines or MSAs. The alliance at a minimum has
to take in a whole metropolitan statistical area.

But what I didn't realize is that the plans within an alliance
have no restriction. They can geographically gerrymander, if you
will, and just pick up wards or precincts, other areas in which they
choose to operate and exclude others. In other words, in a variety
of areas you could geographically, as a plan, restrict your open en-
rollment street by street, neighborhood by neighborhood.

Does that give you any concern, Mr. Bross?

Mr. Bross. It gives us grave concern because that is exactly the
situation people with HIV and AIDS are facing in today's system.
While we are focusing on some of the key concerns that the AIDS
community has for the Clinton plan, I would just go back to
some

Chairman STAim. Castro wouldn't have an insurance company
within 5 blocks.

Mr. Bross. I would just go back to some of the other elements
that are essential, whatever sorts of health care reform plan we
come up with, to make sure we do have universal access, universal

335

coverage. You are talking now about the key component of the plan
that causes us the most concern.

Chairman Stark. Dr. Ehrenkranz, do you see mischief in that
oversight?

Dr. Ehrenkranz. I see mischief. But remember, physicians and
health care providers have chosen to place their offices in different
locales. One of the other concerns, certainly, is with underserved
areas, in urban areas, suburban, and rural areas, and one of the
things that is addressed by the Clinton plan is the need to increase
provider capacity and availability.

Chairman Stark. Let me try something on you. It always has
seemed to me, and I don't say this either pejoratively or with dis-
respect, if you want doctors to practice in rural areas or the Ana-
costia area of the District of Columbia, pay them, they will go down
there. But the insurance companies aren't going to go in there. You
and I know that. We have evidence here that Prudential will not
come into the District of Columbia because it will want to open
their entire provider network to Medicaid benefits. They are on
record.

What I am suggesting is that unless there is an open enrollment
structure, that isn't enough. I am just saying there are two points,
as my colleague from California so happily pointed out before,
there are two issues. There is coverage and there is access. We all
know that a hell of a lot of people with Medicaid coverage have no
access. So a lot of people have access through the emergency room,
but they are not going to get coverage.

Now, we can provide some policy, but if you are living 100 miles,
figuratively or literally, from the provider, we have a problem. And
somehow it seems to me at least on the coverage side we ought to
open the enrollment in every plan so that a poor population or
HIV-positive population can select any plan, and the plan is trans-
parent. When this person walks in the door with that card, the
card is silent as to why you are there, whether you live in a rural
area — you could limit Redwing, but you can still go to Rochester if
you choose. If you happen to think that Mayo is going to provide
you better care, you can pack up, drive, hitchhike and get care. But
if they are allowed to exclude that, then — did Redwing make the
boots I used to wear?

Mr. Smedsrud. Yes. But the alliance would have the authority,
from my reading of it, to make a lot of those decisions in terms of
it could save the health plan.

Chairman Stark. That is what I thought. But it very clearly says
that the health plan may limit its geographic boundaries. It could
go further. The health plan can refiise even open enrollment within
the district they choose to serve if in their opinion they decide that
they are up to capacity. Being up to capacity is an art form that
any health plan administrator can decide. You walk in the door
and I don't like you, I am up to capacity right then.

What I am getting at is in this plan, as I said earlier, is an artful
design to teach people how to redline or exclude people. The only
way I know how to not do that is go the other way and just say.
We have to make it not only say you have to let them in, but make
sure you are there to service them when they come. That is some-
thing that I think no plan really has addressed.

336

The coverage is easy. Again, how do you get hospitals and doc-
tors and nurses and pharmaceutical services out in rural areas
and/or impacted inner-city areas. We are not very good at that. We
have some ideas but for all we have tried, we are inadequate in
every department, both in rural and inner-city areas. I will take
the coverage and then we will go on to the next step, it doesn't
have to get done in 1 year. But I think in the testimony that you
are providing, the constituencies you represent need both. And we
will try to get them.

Thanks for helping us today. Stay in touch with us. We will be
at this for many more months. We appreciate your continued ad-
vice. Thank you.

[The following was subsequently received:]

337

Birth Defects I

Nalionai Gouernmeni Atfaits Ofl
1901 L Sireei, NW, Suiie 260
Washington, DC 20036
Telephone 202 659 1800
Fax 202 296 2364

November 8, 1993

Congressman Pete Stark, Chairman
Subcommittee on Health
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515

Dear Mr. Chairman:

The March of Dimes is pleased to learn of your interest in assuring needed
preventive care is available to pregnant women- Your comments during the October 21st
hearing were very enlightening regarding the need for emphasis on the cost effectiveness
of prenatal services.

For the record of your Subconmiittee's October 21, 1993 hearing, we would like to
submit the attached three short pieces documenting the prevalence of smoking among
women of childbearing age, the health consequences, and the cost-effectiveness of
smoking cessation for pregnant women.

Thank you for your interest in the health of mothers and babies and your
leadership in the shaping of national health care reform policy.

Ru^.CLk^

Sincerely,

Richard A Ehrenkranz, M.D. Vivian Gab/r, M.P.H.

Public Policy Fellow Senior Associate

Federal Affairs

Enclosures for Submission to the Record:

1) Excerpts from: Birth Defects and Infant Mortality. March of Dimes Birth
Defects Foundation, December 1991.

2) Excerpts from: Monthly Vital Statistics Report VoL 42, No. 2, Supplement,
July 8, 1993.

3) Marks, J.,Koplan, J.P., Hogue, C J.R., and Dahnat, M.E., "A Cost-Benefit/Cost
Effectiveness Analysis of Smoking Cfessation for Pregnant Women", Amer. Journal
of Preventive Medicine. Volume 6, Volume 5, pp. 282-289.

338

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Vol. 42, No. 2, Supplement • July 8, 1993 i^

Monthly vitaTi
Statistics Report

-ffisjD

Final Data From the CENTERS FOR DISEASE CONTROL AND PREVENTION/National Center for Health Statistics

Advance Report of Maternal and Infant Health Data
From the Birth Certificate, 1990

Contents

Introduction 1

Medical risk factors 2

Tobacco use 3

Alcohol use 4

Maternal weight gain 5

Obstetric procedures 6

Complications of labor

and/or delivery 6

Method of delivery 7

Abnormal conditions of

newborn 8

Congenital anomalies 8

References 9

List of tables 11

Technical notes 29

Introduction

Beginning with the 19S9 data year,
information has been available on a
large number of important maternal
and infant health factors affecting birth
outcome. These include medical and

life-stjle risk factors of pregnancy and
birth, obstetric procedures performed,
method of delivery, abnormal condi-
tions and congenital anomalies of the
newborn, expanded information on
birth attendant and place of delivery,
and questions on the Hispanic origin
of the parents. This major enhance-
ment of medical and health data avail-
able on an annual basis for mothers
and babies greatly expands the scope
of information on pregnancy outcome
in the United States (1,2).

The new information was first pre-
sented in an earlier report (3). This is
the second report focusing on the new
data. Expanded information on 1990
births by attendant and place of
delivery as well as Hispanic origin of
the parents was also presented in an
earlier report (4).

The data available for 19S9 and
subsequent years reflect a significant
departure from prior years in birth
certificate content and format. Check-
bo-xes are used extensively to obtain
the detailed medical and health data

requested. Uniform reporting and a
clear focus on the requested data are
facilitated by this new format.

As of 1990, all States (except Okla-
homa) and the District of Columbia
had implemented the new birth certif-
icate. Oklahoma revised its certificate
as of 1991. Although most States
adopted the revision in its entirety,
there are some exceptions. Some States
did not include every item in their
revisions: Items such as tobacco and
alcohol use are not reported by every
State. In addition, some States
reporting a given item did not include
every checkbox for that item. As a
consequence, the total number of births
in the areas reporting each factor or
condition and the number of births for
which the information is not stated will
vary to reflect the differing number of
States reporting the specific factor or
condition. These variations are indi-
cated in the tables.

Now that the new medical and
health data have been available for 2
years, some improvements have been

Acknowledgments

This report »as prepared in the Di^ision of Vital Statistics. Stephanie 1. Ventura. Sclma M. Taffcl. and T. J. Mathews of the Natality. Marriage, and
Divorec Statistics Branch wrote the report. Donna Wright prepared statistical tables and Thomas Dunn provided content review. Manju Sharn-.a
provided computer programming support. The Registration Methods Branch and the Technical Services Branch provided consullallc
statistics offices regarding collection of the birth certificate data on vihich this report is based. This rcpoi
by Zung T. N. Lc of the Publications Branch. Division of Data Services.

I by Arletl Brown and typeset

U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Public Health Service

Centers for Disease Control and Prevention

National Center (or Health Statistics

CDC

342

Monthly Vital Statistics Report • Vol. 42, No. 2{S) • July 8, 1993

43 percent risk of another heavier-than-
average baby.

The likelihood of a preterm birth
(gestation of less than 37 completed
weeks) was 20 percent or greater for
mothers with hydramnios, eclampsia,
incompetent cervix, previous SGA
infant, and uterine bleeding compared
with 1 1 percent for all births.

Tobacco use during pregnancy

Cigarette smoking during preg-
nancy has long been associated with
reduced infant birthweight (8,9), intra-
uterine growth retardation, and pre-
term birth. Low birthweight in turn is
one of the major predictors of infant
mortality and infant and childhood
morbidity. Sudden infant death syn-
drome (SIDS) in particular is highly
associated with low birthweight (10-
12). Additionally, maternal smoking
during pregnancy has been shown in
many studies to be associated with a
sharply elevated risk of SIDS even
after other risk factors such as low
birthweight have been taken into
account (10,11). Finally, past studies
have estimated that the number of
infant deaths could be reduced by
10 percent if pregnant women did not
smoke (11,13). The mechanisms
through which tobacco use adversely
affects pregnancy outcome have been
reviewed elsewhere (8,14).

The birth certificates of 45 States
and the District of Columbia reported
tobacco use during pregnancy in 1990.
The information was not available for
California, Indiana, New York, Okla-
homa, and South Dakota. The moth-
er's smoking status was not reported
on 4 percent of the birth certificates in
the reporting States (table 2).

Smoking during pregnancy was
reported by 18.4 percent of women
giving birth in 1990 compared with
19.5 percent in 1989. These levels are
comparable to those reported in the
1988 National Maternal and Infant
Health Suivey (NMIHS) (15). As in
1989, white mothers in 1990 were more
likely to smoke than were black
mothers, 19.4 percent compared with
15.9 percent. The smoking rate was
highest for mothers aged 18-19 years
(22.5 percent) and lowest for teenage

mothers under 15 years (7.5 percent)
and for mothers in their forties
(12.3 percent).

The same variation in smoking by
age was observed for white mothers,
but for black mothers, smoking was
most prevalent at ages 25-34 years,
with rates of 21.1-22.5 percent com-
pared with 9 percent or less for teenage
mothers.

Among all mothers who smoked, a
majority (59 percent) smoked no more
than half a pack of cigarettes (10 or
fewer) per day. One in five smoked five
cigarettes or less daily. However, more
than a third smoked 16 cigarettes or
more per day. Younger mothers tended
to smoke fewer cigarettes; of teenage
mothers who smoked, two-thirds
smoked half a pack or less per day.
The average number of cigarettes
smoked increased steadily with
advancing maternal age.

White mothers were not only more
likely than black mothers to smoke
during pregnancy, but those who were
smokers smoked much more. Thirty-
seven percent of while women com-
pared with 21 percent of black women
smoked 16 cigarettes or more per day.
Conversely, 33 percent of black mothers
compared with 17 percent of white
mothers smoked five cigarettes or fewer
per day.

Several studies have indicated that
Hispanic women are much less likely
to smoke than non-Hispanic women
(16-18). Birth registration data corrob-
orate these findings (table 3). Overall,
7 percent of Hispanic mothers were
reported to have smoked during preg-
nancy compared with 21 percent of
white non-Hispanic and 16 percent of
black non-Hispanic mothers. Mexican,
Cuban, and Central and South Amer-
ican women were particularly unlikely
to smoke, 3-6 percent compared with
Puerto Rican mothers, 14 percent.

The highest smoking rates for His-
panic women overall were for mothers
aged 18-34 years, 7 percent. There was
very little variation by age in the per-
cent of smokers for Mexican, Cuban,
and Central and South American
mothers. Among Puerto Rican mothers,
the percent of smokers varied more,
7-14 percent. By contrast, the propor-
tion of smokers among non-Hispanic

women varied substantially according
to mother's age. Among white non-
Hispanic mothers, the proportion
ranged from 13 percent (mothers 35
and older) to 33 percent (mothers aged
18-19 years). Among black non-
Hispanic mothers, the proportion
ranged from 2 percent (teenagers under
15 years) to 23 percent (women aged
30-34).

Maternal smoking is relatively rare
among Asian women. The proportions
in 1990 were 2 percent for Chinese
mothers, 4-5 percent for Filipino and
other Asian and Pacific Islander
mothers, and 8 percent for Japanese
mothers. (Tabular data are not pre-
sented in this report.)

Among mothers giving birth in
1990, one-third with 9-1 1 years of edu-
cation were reported to have smoked
during pregnancy, seven times the rate
reported for college graduates, 5 per-
cent (table 4). Women with a grade
school education or less (0-8 years)
and women who were high school grad-
uates were about equally likely to
smoke, 19 and 21 percent, respectively.
The relationship of maternal smoking
and educational attainment is similar
for white and black mothers. However,
white mothers with 12 years or fewer
of schooling were 47-80 percent more
likely than their black counterparts to
smoke. For women with 1 year or more
of college, however, the proportions of
smokers were similar for white and
black mothers.

Among mothers who smoked, those
who had completed the fewest years of
formal education smoked the most. In
1990, 48 percent of mothers with a
grade school education or less smoked
at least half a pack of cigarettes per
day compared with 29 percent of
mothers who were college graduates.
The relationship between the number
of cigarettes smoked and educational
attainment was similar for white and
black mothers. In each educational
attainment category, white mothers
smoked more cigarettes than black
mothers, but the racial disparity nar-
rowed as educational attainment
advanced.

Maternal smoking has a severe
adverse impact on infant birthweight.
Babies born to mothers who smoke are

343

Monthly Vital Statistics Report • Vol. 42, No. 2(S) • July 8, 1993

alike were at two to three times the
risk of low birthweight as were babies
born to nonsmokers.

at substantially elevated risk of low from 8 to 12 percent, and for black
birthweight (11.3 percent) compared mothers, the increase was from 18 to
with babies born to nonsmokers 32 percent. Babies born to the heaviest
(6.1 percent) (table 5). Although the smokers among white and black women
risk of low birthweight tends to decline
with advancing maternal age, the dis-
parity in low birthweight by maternal
smoking status actually increases with
increasing maternal age. For example,
among mothers lS-19 years, 11 per-
cent of births to smokers compared
with 9 percent of births to nonsmokers
weighed less than 2,500 grams (5 lb 8
oz). Among mothers aged 25 years and
older, however, the incidence of low
birthweight was more than twice as
high for births to smokers, 11-16 per-
cent compared with 5-7 percent. The
relationship of maternal smoking and
low birthweight can be viewed in
another way: Although mothers who
smoke account for 18 percent of all
births, they account for 28 percent of
all low-birthweight births.

White and black infants alike were
adversely affected if their mothers
smoked during pregnancy. Among
white mothers, 9.4 percent of smokers
compared with 4.8 percent of non-
smokers gave birth to a low-birth-
weight infant. The proportions for
births to black mothers were 21.2 per-
cent for smokers and 11.7 percent for
nonsmokers. The differential by
smoking status was substantial for white
and black mothers in all age groups
and tended to increase as age of mother
advanced. Regardless of age and
smoking status, however, black babies
were at considerably elevated risk of
low birthweight compared with white
babies.

Another aspect of maternal
smoking that affects the levels of low
birthweight is the number of cigarettes
smoked daily during pregnancy (9).
Although the differential in low birth-
weight is greatest when smokers as a
group and nonsmokers are compared,
heavier smoking tends to elevate the
low-birthweight levels even funher. In
1990 the incidence of low birthweight
increased from 10 percent for births to
mothers who smoked five cigarettes or
fewer to 14 percent for births to
mothers who smoked 1 1/2-2 packs
daily. For white mothers with compa-
rable smoking levels, the increase was

344

A Cost-Benefit/Cost-Effectiveness Analysis
of Smoking Cessation for Pregnant
Women

James S. Marks, MD, MPH, Jeffrey P. Koplan, MD, MPH,
Carol J. R. Hogue, PhD, and Michael E. Dalmat, DrPH

Research has shown that pregnant women who smoke cigarettes increase their risk of
having low birthweight (LBW) infants. Recent randomized trials indicate that women
who quit smoking early in pregnancy reduce their risk of delivering a LBW infant.
Using various sources, we estimated the cost-effectiveness of a smoking cessation
program for preventing LBW and perinatal mortality. Assuming the program would
cost S30 a participant and that 15% of the participants would quit smoking, we
determined that a program offered to all pregnant smokers would shift 5,876 LBW
infants to normal birthweight and would cost about S4,000 for each LBW infant
prevented. Since infants born to smokers are at 20% greater risk for a perinatal
death, a smoking cessation program could prevent 338 deaths at a cost of S69,542 for
each perinatal death averted. Compared with the costs of caring for these LBW
infants in a neonatal intensive care unit (NICU), smoking cessation programs would
save 577,807,054, or 53.31 per 51 spent. The ratio of savings to costs increases to more
than six to one when we include reducing long-term care for infants with disabilities
secondary to LBW in the benefits from smoking cessation programs. These findings
argue for routinely including smoking cessation programs in prenatal care for
smokers. [Am J Frev Med 1990;6:282-91

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